Gold Slips Below $1,300

Wednesday, 16 July 2014
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Published in Gold Investing
Gold Slips Below $1,300 Wikipedia.
It’s been a brutal week for gold, with prices finally stabilizing marginally below $1,300. On Monday gold dropped 2.3%, the largest one day drop in all of 2014 so far. Gold prices bounced off lows in early trading on Wednesday, up $3.44 to $1,298.07, while silver was up $0.05 to $20.72.


Irrational strength in the stock market, combined with softness in precious metals, pushed the Dow/Gold ratio up to 13.14, up from 12.75 last week. The Silver/Gold ratio stayed at 62.65, nearly unchanged from last week, indicating silver fell in lock-step with gold prices.

One of the factors pushing gold lower was the disappointing decision by the Indian government to maintain a 10% import duty on gold, curtailing physical demand from Asia. Profit taking was also certainly a factor, as gold zoomed from a low of $1,244.07 in early June to over $1,337 in July.

The funny part is, when the markets crater and gold prices explode, everyone in the financial entertainment industry is going act surprised.

A selloff in gold comes after dovish comments from Federal Reserve Chairman Janet Yellen, and a surge in the value of the dollar as the US once again shines as the cleanest shirt in the global hamper. It’s not that we’re doing particularly well right now, but we look good compared to everyone else. That also describes the US equity markets in a nutshell. The market is overvalued, fund managers know it’s overvalued, and people keep buying anyway. Equities are not a good deal at current prices, but until investors have a better or safer alternative, there really isn't anywhere else for them to go with cash.

These are strange days in all the markets; nothing is tracking exactly like one would expect. The exuberance is at odds with both fundamental valuations and the situation in the Middle East. ISIS is still a force in Iraq, able to fight the Iraqi army to a standstill. The militants are able to import weapons and supplies from Syria, and have been attracting supporters from all over the world to fight for them. The only reason Iraq isn’t getting more press is because the Palestinians and Israelis are at each other again, while Libya smolders and Syria continues to dump barrel bombs out of helicopters into residential areas, a cruel and cynical ploy to burden the opposition fighters with civilian casualties. You know things are seriously messed up when the US and Iran suddenly find themselves on the same side of a conflict, and we’re collaborating with them because suddenly they look like the sane ones in the region.

Global markets remaining calm in the face of such insanity is hard to fathom. Gold traders seem to be ignoring market valuations, ignoring China hoarding gold, ignoring the Middle East and central bank monetary policy. That complacency will last until the first RPG lands in Iraq’s oil fields or oil distribution terminals — and then traders will all wake up at the same time.

The funny part is that, when the equity markets crater and gold prices explode, everyone in the financial entertainment industry is going act surprised. They’ll gloss over their consistent failure to spot any big trend in finance with same dull patter about how no one could have seen that particular combination of events coming together. My question is how can you miss them at this point? The signs couldn’t be any more plain if they were printed on billboards.

Don’t get caught sleepwalking into a financial disaster. Catch up on your fixed percentage of hard assets, and dollar cost average your buys by spreading them out over a long period of time. Stick to your plan — and when reality does reassert itself in the markets, you can laugh at the financial entertainment media when they try to tell you they saw it coming.

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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.