Gold Powers Higher

Wednesday, 02 July 2014
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Published in Gold Investing
Gold Powers Higher PhotoDune.

These are strange days for the economy, as both gold and the stock market posted higher prices in the same week. In midday trading on Wednesday, gold was higher by $3.21 an ounce to $1,329.40, and silver was up $0.24 to $21.24.

The surge in gold prices was matched by the stock market, powering into record territory despite warnings from Federal Reserve Chairman Janet Yellen that investors may not fully appreciate the risk of future losses. Even though Yellen did not anticipate any current change in monetary policy, the bold warning was meant as a bucket of cold water on the stock market party. The strange price action this week kept the Dow/Gold ratio pegged at 12.7, on a week where gold should have had a clearer edge.

First-Strike

The silver/gold ratio narrowed to 62.5, indicating we’re on track for another solid week for silver. Platinum was also higher, with prices coming off a 10-month high to settle near $1,500 an ounce. Palladium also posted gains, up $4.40 to $854.90.

The news for gold would have been even better, but prices dipped briefly after a stronger than expected jobs number was posted for US payroll numbers. Economists had expected 210,000 new jobs in June, but private-sector payroll numbers were up by 281,000, soundly beating expectations. Private sector payrolls are considered a reliable indicator of the strength of the US recovery by many economists, and the good economic news paused but didn't stall the upward march of gold prices.

If the militants make it to Baghdad, you can expect the prices of gasoline and gold, both already creeping higher in recent days, to explode.

Gold was buoyed by continued unrest in Iraq, as the Iraqi government managed to push back the advancing militants, although the situation on the ground is highly fluid. The situation in Iraq is making strange bedfellows, with the US sending attack helicopters, and the Russians sending a dozen Sukhoi Su-25 combat fighter jets, to help prop up the government of Nouri al-Maliki — while the Saudis vehemently denying they’re providing material or financial support to the Sunni militants.

As long as the fighting doesn't reach Iraq’s oil fields and oil transport facilities, we probably won’t see double digit increases in gold prices. If the militants make it around Baghdad, then you can expect the prices of gasoline and gold, both already creeping higher in recent days, to explode. That insane rise in gold and gas would be matched only by the sudden implosion of the stock market, in a reversal that has the potential to be epic in scope.

Investors are already hedging their bets, as gold reached its highest price in three months, and the largest gold-backed ETF, SPDR Gold Shares, reported a large increase in its gold holdings. Gold prices have recovered nearly 8% from their June lows, and the potential upside is still significant.

Periods of unrest that induce volatility in gold prices are one of the reasons to practice dollar cost averaging when making your purchases of gold and silver bullion products. Trying to time the market is rarely successful but, by spreading your purchases out over a long period of time, the ups and downs of volatile markets will even out. With the potential for Iraq to explode, and the rising influence of China, which may be sitting on the world’s largest gold holdings, this is not the time to be putting off your regular purchases.

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.