Gold Volatility

After checking Monex once again today, I noticed that gold has dropped $53 and has lost its coveted summit as most expensive (per ounce) popularly-traded precious metal. The current ratio of gold to platinum is now (rounded to the nearest thousandth) 0.978 to 1. But why did gold all of a sudden drop so rapidly in price?

Whatever one's assumptions, we can say that confidence in our government is not one of them. After Standard & Poor's downgrading of the United States' credit rating last week, Wall Street and the New York Stock Exchange has seen historic lows in stock prices and market uncertainty. In this environment, people would normally turn to gold as a safe-haven asset for their portfolios, thus pushing up the price. However, this doesn't appear promising given the high price of gold. It was exactly this kind of demand for gold that pushed it above platinum in the first place earlier this week.

Rather, what we are seeing is the phenomenon of selling gold in exchange for paper dollars. In this bad economy, people have debts to pay off and prices are wildly fluctuating throughout the market. Given that it is difficult to transact in gold (since it is not legal tender), investors sell their gold for dollars in order to meet their financial obligations. In this case, there would be more seller than buyers. As a result, this market situation tends to push the price of gold down.

We might continue to see the rapid fluctuation of precious metals prices in the next few months. It is imperative that people watch these prices. The continued increase in prices since the beginning of the last decade should cause everyone concern about the state of our economy when government gets involved. Don't let that idea mask the perception that government involvement in the marketplace lowers prices. The market does what it can to correct the mistakes made by the government, but it is the government which is fundamentally at fault.

Buying Silver on eBay

In the recent weeks, many have rushed to buy silver as they have seen it trend upwards.  Your first inclination may be to go to the place down the street to purchase your silver rounds or bars at a coin/metals retailer. Yet there is an alternative that some may not think of: eBay.

I decided to invest in silver a little over a month and a half ago when silver was $36 per oz., with some of the money I obtained as a result of my high school graduation.  I drove down to the local retailer, The Coin Index, a coin/metals retailer located 20 minutes south of downtown Indianapolis. I did not know it at the time, but I would find a much better deal, courtesy of sellers on eBay. 

The spot price the day I bought the Engelhard American Prospector 1 oz. round was $36 per oz. Yet the final price was roughly $43.76. After Indiana's 7% sales tax ($2.52 on $36), the mark-up price was roughly $5.24.  No more than two weeks later, I purchased another silver 1 oz. round, but this time, for $38.95, including the shipping, while the price per oz. was still around $36.  After that purchase, I opted only to buy my silver rounds/bars through eBay, and currently have purchased 4 oz. from sellers on the site. 

Why Gold Prices Are Setting New Records

With gold prices nearly doubling in the past 3 years—recently surpassing $1500 an ounce—one might be wondering:  How high can it go? The Daily Reckoning believes gold prices still have  the potential to reach even higher numbers and are urging people to invest in precious metals sooner rather than later:

We don’t expect the gold price to soar because gold is such a great thing; we expect it to soar because the world’s major currencies are not such great things. A dollar bill looks good, only when you place it next to a euro or a yen. But all three look sickly when you place them next to a bar of gold.

Gold has a 3,000 year track record compared to the terrible paper trail of inflation by fiat currencies and central banks. The problem with the dollar is, as The Daily Reckoning states, “there’s too much credit and not enough faith.”

Even as Moody’s and Standard & Poor’s threaten to downgrade the United State’s credit rating, politicians in Washington seem to be ignoring the signs that spell out the end for the dollar. David Galland points to five signs that point to fiscal disaster for the United States if drastic cuts are not enacted very soon:

1. Europe is becoming more fragile and desperate for bailouts.
2. Politicians will not admit the scope of the debt problem and refuse to abdicate Keynesian economics.
3. China’s faulty economy can set off large consequences for the United States.
4. Japan is caving under their debt and nuclear problems.
5. The Middle East is in chaos.

These signs warn of tough times ahead for future generations if the debt problem isn’t taken seriously. The government has steered the economy straight into an iceberg; only the market can effectively navigate a course towards prosperity.

What is Your Currency of Choice?

Shouldn't you have a choice? What is valuable to you? Do you love paper so much that you'll work 40 hours a week for it to put food on the table?

More at www.silverunderground.com.