Gold Higher On Dollar Weakness

Posted: Dec 21, 2012 12:01 AM

The euro gained against the dollar as overseas investors worried about the U.S. going over the fiscal curb sending gold prices higher. 

Gold was trading higher Thursday, up $2.97 to $1,670.49, and silver was up $0.14 to $31.17 bringing the silver/gold ratio to 53.5. 

Gold and silver were joined on the upside by platinum while palladium, crude oil and copper all traded lower. 

It’s an interesting dance in commodities right now as most are trading artificially higher due to nearly $4 trillion in excess cash that the Fed has injected into the U.S. currency supply.  That money was supposed to find its way into the economy in the form of small business loans to boost hiring.  Instead the relative handful of big players at the top shunted off the bulk of that money to speculate in commodities via the derivatives market and the rest of us be damned. 

This excess of cash not finding its way into the broader economy is a bigger problem than simply enriching an already wealthy group of people at the top of the economic food chain; it’s also starving the poor savers at the opposite end of the economy by robbing cash savings of any real value and making small business loans more expensive and difficult to obtain than the Fed intended.  Big banks don’t care about making loans to small business when they need the cash to cover their bets in the giant casino of derivatives trading. 

Putting aside the fact that what’s going on in our nation’s financial system just seems wrong to most Americans, it’s also really messing up the commodity markets, including precious metals.  I believe the Derivatives Follies going on over at Wall Street are the reason that gold and silver are no longer predictably reacting to fundamental market forces. 

It all probably means that we’re paying a Wall Street premium on gold and silver right now, but also keep in mind that you have to balance gold and silver prices against the value of currency, which is also wildly out of whack due to all the excess cash.  

Despite the manipulation, gold will hold some relative value to currency and the Federal Reserve has been printing a lot of money the last few years.  How close we are to the actual market value and how much of current gold prices are the Wall Street premium, I can’t tell you.  All I know is I trust gold and silver more than the weightless computer blips in my bank account. 

Chris Poindexter, Senior Writer, National Gold Group, Inc