The Federal Reserve really stepped in it this time. Just when gold was starting to find a direction that was, more or less, conforming to fundamentals the Fed decided to toss the market into disarray by signalling that the days of cheap money may be drawing to a close.
Gold reacted badly, dropping to just over $1,630 an ounce before recovering to the $1,650 range where we ended the week. Silver managed to hold up better than gold, ending the day Friday in positive territory and even a small gain for the week when it closed at $30.20 an ounce. The silver/gold ratio at the close was 54.8 after rising slowly but steadily all week.
To be fair it was a tough week on commodities pretty much across the board, but gold did get rocked around more on a percentage basis.
Congress striking a deal on the fiscal curb briefly put wind under the wings of gold and the equity markets but no sooner was the autopen ink dry on that less than grand bargain before political wonks started making noise about the debt ceiling, threatening to let the United States of America default on at least some of the bills we owe. It’s apparent that madness is still fashionable in Washington and the self-imposed instability is bad for business at a time the rest of the world is seeing resurgent growth.
For next week I see gold prices even to slightly higher, depending on how much of the Congressional insanity spills over into the media and any additional comments from the Federal Reserve about tightening the money supply. I do think the markets were oversold on the Fed comments, but that doesn’t mean gold prices won’t drop further if the Fed makes additional comments suggesting that the zero interest rate party may be ending.
For next week then, I’d stay on the sidelines with gold and do any precious metal trades you might want to make in silver. You’re not going to go too far wrong with silver in the $30 an ounce price range. I get more bullish in the mid-$20 range, but $30 motivates me to at least look at the silver specials dropping into my email box.
To be clear, I believe the overall macro trend for gold is still positive. Global currency policy is still solidly on the side of gold investors as we’re all still trapped in a race to the bottom on currency valuations. The volatility and capriciousness of the markets are in part due to the fact that there’s really no good way to relate the price of gold to the value of currency.
At times like this you’re farther ahead in the long run sticking to your disciplined approach than trying to anticipate a market infected by Washington’s insanity.
Chris Poindexter, Senior Writer, National Gold Group, Inc