European Downgrades Spark Gold Strength

Clint Siegner Clint Siegner

Clint Siegner

January 18th, 2012 Comments

Gold and silver look to build on gains from overseas trading as U.S. markets reopen following the federal holiday.

Precious metals gained for the second week in a row last week. Gold rose about $12 during the week and has put on more than $25 so far in this week's trading, currently at $1,669/oz. Silver gained almost $1 last week and continues to rise this week into the $30.50/oz. range.

Fears of power outages in South Africa (where most platinum is mined) ignited a rally in platinum, which has risen $120 since its close on January 6th. It is currently trading above $1530/oz. Palladium is also up strongly, trading above $650/oz.

For those who follow the charts, gold has broken above important resistance at $1,650 – and it will really have a chance to get going to the upside if it can clear $1,680. Silver needs to see some daily closes above $30/oz and then needs to get above $32.50 to confirm this rally has legs.

Metals Continue to Trade Like Stocks, But For How Long?

Standard and Poor's downgraded the debt of 9 European nations on Friday. This made for big headlines, and it appears to have given some support to the precious metals.

The futures markets continue to be dominated by traders focused upon the short term. Silver, in particular, is trading more like a "risk" asset, similar to equities. Bad news often triggers a market-wide selling of "risk" assets and buying of US dollars and Treasuries.

The U.S. dollar made a new 52-week high last week, and Treasury yields are near all-time, record lows. Yet pundits continue to characterize precious metal markets with the word "bubble." Given the shambles of our nation's finances and the Fed's propensity to print, Money Metals believes the U.S. bond market is forming the mother of all bubbles.

Time to Overweight Silver

The gold / silver ratio has been hovering around 55 in recent weeks. This ratio reached the low 30's when silver made its highs in April 2011 -- the lowest ratio seen in nearly three decades. Money Metals has often noted that the historical average on this ratio is closer to 16, and we fully expect the ratio to return to this level before the bull market in precious metals has run its course. We think investors should favor silver here.

Premiums and Buying Trends

It was relatively quiet in terms of trading volume at Money Metals Exchange last week. Sales of gold were almost equivalent to sales of silver. And once again, buying far outweighed selling activity.

Premiums remain stable, with very little change over the past 3 weeks. Most items are in stock and available to ship promptly, including pre 1965 "junk" coins which were in short supply a few weeks ago.

2012 silver American Eagles have arrived in inventory.

We still have the 2011 variety coming in as well, so please make sure and let us know if it is important to you to have the 2012s when you order.

We Buy Back Too!

We want customers to know that Money Metals Exchange is here to buy back gold, silver, platinum, and palladium in the common bullion forms. We certainly don't advocate selling at this time, as we think the bull market in metals has years left to run. However, if you decide to sell for whatever reason, we can lock a price with you right over the phone, deliver a purchase order to confirm the transaction, and send your payment promptly after we receive the metal. You will find we are as easy to deal with when you sell as we are when you buy!

Clint Siegner

About the Author:

Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.