The dollar rebounded in overnight trading as investors woke up to the fact there was nothing driving a sustainable recovery in Europe after all.
In early trading gold was down $8.68 to $1,575.13 and silver lost $0.45 to $26.85, bringing the silver/gold ratio to 58.6.
Gold and silver had plenty of company to the downside in commodities as platinum, palladium, crude oil and copper gave back all of yesterday’s gains and then some, largely on gains by the dollar against the euro.
If the trend holds through the day, that will leave gold and silver down for the week, in line with changes in currency valuations. This trend of a stronger dollar has been going on for over a year now, as you can see on the one year chart here and lines up almost exactly with the downtrend in the price of gold over the last 12 months.
The interesting speculation now centers around how long the Fed can let the dollar gain ground against foreign currencies before it starts impacting the jobs market. There is some evidence that job growth has stalled the last two quarters as the strong dollar makes U.S. exports less competitive on world markets.
Let’s be clear; the Fed will be forced to print money but it doesn’t have anything to do with stimulating the economy. The Fed will be forced to dump cash into the economy to keep the dollar competitive with foreign currencies and preserve the market for U.S. exports.
For smaller retail precious metals investors, let me remind you that you really haven’t lost anything holding gold over the last year. True, the prices have come down, but that’s because your dollars are buying more.
In fact, as long as the dollar stays strong, I would continue to add to your holdings of bullion-priced precious metals. With the silver/gold ratio over 58, I would continue splitting those small buys with silver.
A strong dollar may have a certain nostalgic appeal, but the longer it goes on the worse it is for our economy. Take advantage of the buying opportunity while it lasts because, when the correction comes, it’s going to be a big one.