The biggest gains for gold last week came on Thursday, on the heels of the Federal Reserve announcement of basically unlimited stimulus. The announcement matched the previous ECB announcement of basically unlimited stimulus, which the Fed had to match or watch while Europe siphoned off our manufacturing jobs.
After a meandering trading day on Friday, gold closed the week at $1,769.60 and silver at $34.61, for a closing silver/gold ratio of 51.1.
Silver is flashing a definite sell signal at this silver/gold ratio, so if you need the cash to purchase durable goods, now is a good time. As always, I do not recommend selling just to lock in profits, especially in an inflationary environment. It’s not wise investing to sell a hard asset when commodity prices are on the rise and inflation is in the wind.
Inflation is coming and, if you can eat it, I’d start stockpiling it now because, thanks largely to the drought in the midwest, food prices are going up. I realize we all sort of get used to escalating consumer prices, but the increases we’ll be seeing next year will raise eyebrows. In the U.S., where we spend roughly 15 percent of our budget on food, the price increases will be merely annoying. In poorer countries, where people spend upwards of 80 percent of their budget on food, the increases will be devastating.
Other commodities you can get used to paying more for in the near future will be gasoline and diesel. It’s a good thing the Federal Reserve doesn’t count food or fuel in their inflation calculations or they might have to modify their strategy. The rest of us are going to eat it, literally.
Inflationary times are when you’re glad to have part of your wealth in a debt-free hard asset like gold and silver. Rising commodity prices will swell that component of your investments, even while inflation eats away at the value of your cash savings.
Precious metals are also your way of sending a polite rebuff to the manipulations of Wall Street and our currency managers. Instead of being forced to participate in the rigged game we call the stock market in search of higher returns, buying defensive investments like gold and silver is, in effect, taking your money off the table until you get a better deal.
Investing in gold and silver is not without risk. Central banks own a lot of gold and one or two of them deciding to sell off some of their holdings could undermine that fraction of your investments. That’s why you limit your investment percentage to 10 or 15 percent and not turn your family fortune into gold and bury it in the back yard.