Gold prices settled today within a few dollars of yesterday’s close, signaling a third consecutive day of essentially flat trading. The metal has been comfortably bouncing around a broad trading range between about $1615 and $1685 per ounce for weeks now and its likely going to take a major catalyst to drive the market in either direction.
That shot in the arm might come from next week’s Federal Reserve Open Markets Committee meeting in which there may be some language opening the door for more easing in the future. Though interest rates won’t be touched and any substantive announcements are very unlikely, traders’ eyes have been glued to the Fed for months now. The single largest contributing factor to price movements in stock and commodity markets this year has been speculation about future Fed decisions. Market makers and traders are not looking to value, trends or analysis to make investment decisions. Instead they are looking to the Fed to see what sort of new manipulation may or may not be in store. That fact in and of itself is an indication of how broken the markets truly are.
For its part, gold is having a bit of an identity crisis at the moment. We have seen a staggeringly high price correlation between gold and equities and the metal has actually taken to moving down on distressing economic news. Because of the situation in Europe and the ongoing market intervention on both sides of the Atlantic, the dollar has actually inherited gold’s safe haven role. When the asset considered the safest investment in the world (the US dollar) is attached to the biggest unfunded liability in the history of mankind (the US debt), there is something terribly wrong with the way global markets are assessing risk. Again, this is another sign of a worldwide financial system that has been manipulated to the brink of destruction.
For thousands of years, gold has been the asset to which investors have turned when the financial road ahead becomes obscured and uncertain. The question now is how long will it be before gold resumes its role as a safe haven, and at what price point will the transition occur. Unfortunately, it may take a significant shock to the status quo to snap the general public out of their Fed induced trance. At the end of the day we have to bet that five thousand years’ worth of safe haven track record will win out against six months of heavily manipulated trading range. One of these days investors are going to wake up to gold back in its traditional role. When they do, you can bet gold won’t be at $1640 per ounce.
From our vantage point here at Merit, we’re seeing a different type of investor making purchases. Though there have been fewer newcomers to the market over the last couple months, we’ve seen some of our old timers quietly coming in and taking large positions. A lot of these are the same folks who bought gold at $300 per ounce when everyone else thought they were nuts. Why do they do it? Unlike most of the general investing public, they are looking far beyond next week’s Fed meeting and they do not like what they see.
Mike Getlin is Executive Vice President of Merit Financial, home to America's fastest growing physical gold IRA company. Please send comments or questions to firstname.lastname@example.org.