Gold was on sale again yesterday with prices down on continued selling and a resurgent dollar.
Prices for gold are down $20.12 to $1,643.10 and silver is down $0.78 to $32.12, putting the silver-to-gold ratio at 51.
Today’s price action is an illustration of why I suggest small buys into selling. Just in case prices go lower, you still have some reserve to make another small buy. It’s the same process in reverse for rallies; execute small sales into price hikes.
What’s puzzling about this sell off is there really doesn’t seem to be a good reason for it. There just isn’t any big indicator flashing “sell gold” in financial markets and yet the selling continues.
Two factors I can see impacting gold prices are the recovering economy and strengthening dollar and yet neither of those are sustainable. Until a driver for sustained growth appears in the global economy there’s a limit to how much it can grow. Technically we’re not even “growing” right now as much as clawing our way back to where we were before the big crash in 2008. The idea that somehow we can continue to grow indefinitely on a planet of fixed size and resources is absolutely ludicrous.
When it comes to the dollar, Chairman Bernanke may be enjoying goading currency traders with a stronger dollar, but keeping it up threatens U.S. export markets. The Fed will find an excuse to ease; they have to either print money or watch manufacturing jobs move overseas. I don’t see that happening, even after the election.
Inflation is still a reality, despite remaining “tame” in the 2 to 2.5 percent range, which conveniently ignores rises in food and fuel prices. Continued inflation eats away at cash savings, particularly when interest rates on savings continue to be near zero. The reason the bank doesn’t need to pay you interest on your cash in the bank is because they can borrow it from the government for 0.25 percent interest. Banks don’t need your money to make loans and, from their perspective, depositors are kind of a pest.
That’s the big picture for precious metals and, as you can see, not much has changed. Housing is still a bad deal for the average consumer, although it’s a better deal now than it was in 2006. Your 401(k) is still going nowhere, but at least most of you have recovered the big losses.
There just isn’t any big indicator to suggest a less defensive investment profile. So, when you see big dips in prices, make small buys.