Gold Down Sharply

Posted: Dec 20, 2012 12:01 AM

Gold dropped sharply midday on Tuesday and never looked back with the price softness carrying over to trading early Wednesday. 

In early trading gold is down another $2.20 to $1,673.98 and silver is off an additional $0.14 to $31.60 for a silver/gold ratio rising to 52.9.  It was a mixed bag for commodities Wednesday morning with crude oil and platinum slightly higher while palladium and copper moved lower. 

Some gold traders and analysts are crying manipulation at the current price moves, but that’s not unusual when a sudden drop catches them by surprise.  Anyone who wasn’t aware the equity and commodity markets were being manipulated to the advantage of a handful of big players really hasn’t been paying attention.  While the current price drop may be manipulation, it isn’t wildly different manipulation than we see every day. 

We’re also seeing the predictable doomsday predictions of gold going to $1,200 an ounce.  I don’t believe that anymore than the articles a couple months ago claiming gold could reach $10,000 an ounce.  Notice you never read about an analyst losing his or her job for making such a wildly speculative call that was also dead wrong. 

That’s because most of those articles come from places with an interest in panicking the herd.  My philosophy is when the market gives you sprouted barley, make beer.  Gold in the mid-$1,600s and silver at $31 means it’s time to move up some of your small, regular buys. 

Just for the sake of argument, what if the predictions about gold at $1,200 are correct?  In that case I’m going to have a lot of gold and silver in the safe by the time prices go that low because I’m buying all the way down, just like I did with equities in 2008.  If the market wants to sell gold at 2010 prices, I’m buying up to the limit of the fixed percentage of wealth I keep in hard assets.  If prices go even lower after that I will, with a Herculean display of self-control, confine myself to cherry picking the best deals. 

The truth is there may be good reasons for what the market is doing right now.  The economy is looking better, at least for those at the very top.  Wall Street has seen its best returns since 2003 and corporate profits are popping.  That kind of good news could be prompting a shift from safe harbor investments to the equity markets.  Yields on long-term Treasuries have gone up lately and that could be prompting some investors to switch out of metals. 

At times like these it’s important to stick to your plan and not panic at every rumor. 

Chris Poindexter, Senior Writer, National Gold Group, Inc