Gold Out Of The Spotlight

Posted: Jan 10, 2013 12:01 AM

Gold and silver will be out of the spotlight for a few days as Alcoa kicks off earnings season and AIG stole the headlines by threatening to sue the taxpayers who bailed them out. 

Gold was up $1.99 to $1,663.19 and silver was down $0.06 to $30.38 for a silver/gold ratio of 54.7. If gold and silver prices hadn’t gone different ways this morning, the silver/gold ratio could have easily breached 55 today; that’s more good news for silver stackers.  Crude oil joined silver lower while platinum, palladium and copper were all higher in early trading. 

Being out of the headlines is actually good news for gold and silver.  For decades the gold and silver trade was limited to big players, like central banks, and the retail gold and silver trade was a relatively small group of collectors and traders.  The precious metals market was well-managed, predictable and you could count on gold and silver prices to track fairly consistently to fundamentals.  Then Wall Street got involved. 

Commodities futures, derivatives and high speed trading all combined to bring the volatility and price inflation of the equities markets to commodities.  It wasn’t long before the debt economy was making inroads into what had formerly been like a giant version of eBay for hard commodities and raw materials. 

I would still argue that gold and silver are your best bets for hedging against wild currency fluctuations and long-term currency values, but precious metals are also a way to opt out of the whole debt as money scheme. 

Robert Kiyosaki maintains that savers are losers and, in some ways, he’s exactly right.  Cash savings get whittled away by inflation and zero interest rate policies.  The cash you convert to hard assets, like precious metals and real estate, will hold some relative value, even if currency values fall over time due to inflation.

On a bigger scale, when you don’t borrow money and keep part of your wealth in hard assets, it undermines the whole Wall Street debt cycle.  When you borrow money the underlying paper is frequently sliced up and traded like a commodity.  By holding a hard asset, like gold, you’re denying Wall Street the ability to sell that debt over and over.

There is a tendency for some investors to romanticize the “good old days” but sometimes the old way really is better.  Living an old fashioned pay-as-you-go lifestyle supported by hard assets as a value hedge may seem boring but it’s definitely low stress. 

Chris Poindexter, Senior Writer, National Gold Group, Inc