Gold prices resumed their downward trek yesterday, joined by many industrial commodities as raw materials prices continue to unwind.
In early trading gold was down $3.80 to $1,688.70 and silver was off $0.16 to $32.85, keeping the silver/gold ratio steady at 51.4.
Once again commodities in general are taking the brunt of the selling pressure with gold and silver being joined on the downside by palladium, crude oil and copper. Prices are meandering around in early trading, with many commodities cycling between small gains and minor losses.
The continued weakness in commodity prices is becoming a bit disturbing as it carries with it a whiff of deflation. Normally deflation is not a big problem because to address it the textbook solution is to print more money. Governments like to print money so any hint of deflation would seem to be the perfect excuse for the Federal Reserve to extend Operation Twist, the current bond-buying program.
The fly in that ointment is that traditional ways of addressing anything in this economy don’t seem to be working. The Federal Reserve has been printing money in rather large quantities since 2008 and, while the economy has clawed its way back to near where it was before the crash, there are few avenues of new growth. In an ironic twist the immediate problem we seem to be facing in the global economy is an excess of capacity and raw materials.
The other associated issue with the recovery is that it has not been a recovery for everyone. Those at the high end of the economic scale have recovered very well, while those at the lower end of the economic spectrum have seen wages and actual buying power reduced.
For gold and silver investors we may see continued price weakness in the days ahead as there doesn’t seem to be much news to move precious metals decisively in any direction. My recommendation stays the same; continue making small, regular buys on the price dips up to the fixed percentage of your wealth that you keep in hard assets.
The reason I suggest continued accumulation of gold when commodities are showing overall weakness is that gold is not an industrial metal; it’s a form of money. You’re not buying gold because you see a bright future in solar sails for spacecraft, you’re buying it as a hard asset benchmark to preserve the relative value of a percentage of your personal wealth.
Chris Poindexter, Senior Writer, National Gold Group, Inc