The realization that the only path for Europe out of the current economic morass is to print money in massive quantities is raising U.S. and European stock markets and pushing gold prices higher.
Gold was up $5.93 in early trading to $1,619.19 and silver is up $0.03 to $27.51, bringing the silver/gold ratio to 58.8. If prices hold through the trading day gold is going to have a very big week up.
On this price volatility I still see the potential for some profit taking to kick in later in the day as a lot of traders like to cash out on Friday, but we should still end the week on a high note.
The latest government reports confirmed what most people already suspected and your 401(k) has been telling you the last three months, the economy had a tough second quarter, with the GDP growing only 1.5 percent as consumer spending remained tepid.
The bad news was balanced by better news on the employment front as fewer people filed for first time unemployment benefits and economists expect the economy to hot up in Q3. If it doesn’t, then look for the Fed to start talking about a stimulus program in this country.
To me all this optimism generated by the European Central Bank’s statement that they are prepared to print virtually unlimited amounts of euros to bail out struggling banks in Italy and Spain seems absolutely bizarre. The fact that the ECB may have already taken a write down on loans to Greece seems to have gotten lost in the euphoria.
For anyone who insists markets are logical, the situation in Europe is a poke in the eye. There is nothing logical about markets recovering when the government announces it’s going to start printing massive amounts of money, but that’s the bizarro economic world we live in today.
I might wait to see if this wave of glad tidings continues or if prices are going to correct when the good feelings wear off. If we do see any type of correction in the next few weeks, buy silver on the dips or at least split your regular buys between silver and gold. I still see silver as an exceptional value right now, even though it takes up more room in your safe.
As always, your best insurance against currency dilution is keeping part of your wealth in hard assets.