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Perspective   Summer is upon us, and, judging from the ticker, it looks like the “Dog Days of August” are hitting the precious metals markets a tad early. Since our last issue, gold has consistently been trading in a range from $650 per ounce to $700 per ounce. The bias of late has been to the low end of the range with gold testing support at $650 yet again. Silver has followed suit with a range from $13 to $14 per ounce. Recent bias here is to the low end as well. There has been a lot of talk that $650 will be the new floor for gold. If that is true, it will have to withstand a serious test here. Gold was trading barely above this support level as the Swiss National Bank released news that it intends to sell another 276 tons of gold over the next two years. Further, the summer months usually bring the lows of the year for precious metals prices. This isn’t always the case, but it was true 12 out of the last 15 years. The impact of these sales on the market, at face value, should be minimal. Keep in mind that the British Central Bank, back in 2000, sold 450 tons over a relatively short period of time, all below $270 per ounce. And, the last time the Swiss sold gold, they moved 1,200 tons onto the market over a 5-year period. However, it is difficult to forecast what the psychological impact of the sales will be. No doubt, the emotion will pack a bigger punch than the volume of metal would suggest. If $650 does not hold, next support for our beloved yellow metal will be at $635 per ounce. Long term, we smell another opportunity to purchase cheap gold and silver. After seeing the euro surge to new highs against the dollar at near $1.37, the dollar has begun to flex its muscles across the board. The most recent trigger was a bout of euphoria as the trade figures for April came in better than expected. However, we are not as enthusiastic about this news. With a deficit of $58 Billion dollars, that included a widening of the trade imbalance with China, we do not interpret these figures as a trade deficit that is “permanently on the mend.” Believe it or not, those were the exact words of some analysts on the news. So, what is a prudent investor to do? Take advantage of the Fourth of July sale prices on precious metals to add to your holdings. Similarly, use the recent strength of the U.S. dollar to increase your exposure to the foreign currencies. After taking these steps, you should be well enough at ease to sit back and enjoy the fireworks…even if they don’t get started until the fall. |
