Gold/Silver Gyrate While Risks of Owning Bonds Rise

Clint Siegner Clint Siegner

Clint Siegner

March 12th, 2012 Comments

The precious metals had another volatile week. The entire sector sold off dramatically last Tuesday, with gold falling all the way to $1,666. However, the yellow metal then rallied through the balance of the week and ultimately gained $2 versus the prior week's close – finishing at $1,715.

Meanwhile, silver dropped to $32.50 before rallying back up to $34.35, posting a $0.45 decline for the week. Platinum fell $17 to settle at $1,686. Palladium closed for the week at $718, down $4.

Prices on gold, silver, and palladium have fallen back this morning.

Greek Debt Charade Underscores Risks Inherent in All Bonds

On Friday, roughly 85% of private Greek debt holders volunteered for a 70% haircut versus the par value of their bonds. This amounts to a reduction of about $138 billion in Greek debt.

Never mind that the debt reduction scheme was simply a prerequisite for the Greeks to obtain about $171 billion in new financing. That's right, Greek government debt will actually grow by $33 billion as a result of this restructuring!

It will be interesting to see how precious metals prices react to developments in Europe this week. Metals – and commodities on the whole – rallied strongly on Friday after the announcement, but so did the U.S. dollar. It is unusual to see both the dollar and gold strengthen, so we may not have seen the full ramifications of these events in the short term.

The lesson for markets in the longer term is that sovereign debt, once considered practically "risk free," is anything but that. Massively indebted governments worldwide are certainly in no position to let interest rates rise.

Until bond yields sufficiently compensate investors for inflation and credit risk, we expect private-sector buyers to shun newly issued government bonds, thereby increasing the imperative for central banks to print and fill this void.

There is nothing that Fed Chairman Ben Bernanke and his peers around the world can't fix with bailouts and some freshly minted cash, right?

Bottom line: any short-term weakness in precious metals prices should be viewed as an opportunity to accumulate more.

Premiums & Buying Trends

Customer buying activity at Money Metals Exchange fell a bit from the very busy pace of the prior week. Buy orders from customers again dramatically out outnumbered sell orders – which were virtually non-existent. Customer buying of silver outpaced buying of gold, as usual.

Premiums rose again slightly on pre 1965 coins, as fewer sellers for this no-longer-minted form of silver constricted the supply slightly. Premiums were mostly unchanged on other items.

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!

Call Money Metals Exchange to Buy or

Sell Precious Metals Coins, Bars, and Rounds.– 1-800-800-1865.

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.