Gold Steady on Demand for Bullion

Wednesday, 09 July 2014
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Published in Gold Investing
Gold Steady on Demand for Bullion PhotoDune.

Gold traded mostly sideways this week, with early trading Wednesday pushing prices higher by $6.10 to $1,325.10. Silver was up $0.11 to $21.12, and platinum and palladium are also trading higher.

Positive-Pullback

The stock market cooled this week, and the Dow/Gold ratio stayed steady at 12.75; the silver/gold ratio was basically steady at 62.7. What we’re seeing this week is almost certainly technical backfilling combined with some profit-taking, as precious metals traders await the latest statements from the Federal Open Market Committee, with investors expecting the minutes to shed some light on when the Fed plans to raise interest rates.

Gold has stomped on bearish forecasts this month, as money managers increased their net long positions for the fourth straight week. Holdings in Exchange Traded Funds are increasing at the fastest pace since 2012.

If oil prices explode, the stock market will collapse and gold prices will surge, as investors flee to safe harbor investments.

Fighting in Iraq has largely fallen out of the headlines, as government forces finally shaped themselves into something resembling an effective defensive force and managed to push the rebels out of some areas. So far oil prices are near where they were last year, but that could change quickly if the militants are successful in attacking the southern oil fields. If oil prices explode, the stock market will collapse and gold prices will surge, as investors flee to safe harbor investments.

If the situation in Iraq wasn’t bad enough, a new round of fighting between Israelis and Palestinians flared up, with a new round of rocket attacks on Israel. The Israelis responded by calling up their reserve forces, launching counter-battery strikes, and preparing for a more aggressive and direct military response. It’s still early in the summer, leaving plenty of time for more fireworks in other parts of the Middle East.

Balancing out the positive pressure on gold prices, the economy is still showing surprising strength — and the economic news has been mostly good. Consumer confidence picked up, and the employment numbers were over all positive. The stock market, while overheated and expensive, is still the best investment game in town. If the inevitable market correction is a soft one, we could see the bears regain some short-term control in gold prices.

Even though it’s in recovery mode, the economy is still fragile at these valuations, and the potential upside still favors gold and silver. One lucky rocket attack by the militants in Iraq, and we could see gasoline prices spike and the stock market collapse. A collapse of the market would certainly trigger another round of layoffs, although I doubt we’d see the same trouble in the credit markets we experienced in 2008. I don’t think we’d see a return to the 2008 style recession, but the market could see a significant and long-term correction.

If you've been putting off rebalancing your stock portfolio and catching up on the percentage of wealth you keep in hard assets, this is a good time to make those moves. Those who have watched their IRA balances recover may want to consider a defensive shifting of some of your retirement assets to a gold and silver IRA. The stock market is expensive, while gold and silver prices are still a relative bargain. If you've been thinking about shifting some of your assets, now is the time to get it done.

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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.