Since touching $1,535 briefly on Monday, gold prices have rallied and even stabilized above $1600. Silver, which touched near $26 on Monday, has climbed back above $30. The precious metals seem to be at the whims of Europe and a strengthening US dollar. Furthermore, Germany (Europe’s economic powerhouse), does not appear to be pleased with the latest so-called sovereign debt crisis solution.
Hopes surfaced earlier this week of a plan to recapitalize Euro banks via the European Financial Stability Facility (EFSF). Talks include the EFSF being leveraged in order to provide more resources without having to receive approval by national parliaments. This caused the euro to strengthen and the dollar to weaken, which gave way to a strong gold and silver rally. After the leverage EFSF plan took center stage though, German finance minister, Wolfgang Schauble was not a happy camper. He said, “I don’t understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense.” Now, gold and silver prices appear to be in a holding pattern as they trade sideways, awaiting the next development from Europe.
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Although gold and silver can experience extreme price moves, the recent volatility with the Europe circus has not deterred most precious metal investors. Reuters reports that the physical gold holdings by the SPDR Gold Trust decreased by less than 1% during the recent gold slump. The article goes on to state, “The minor dip in holdings is remarkable, because many traders had initially feared that the advent of precious metal ETFs-which five years ago opened up the gold market to many retail and institutional customers by making it as easy to trade as stocks-would inject more volatility into markets. Instead, those same investors appear to be holding firm to the view that gold is a better long-term bet with the euro debt crisis and a sputtering US economy far from over.” Precious metal ETFs are not the only way investors are playing gold and silver. Many investors looking to protect themselves from a declining US dollar or global uncertainties also invest in physical bullion. APMEX, a leading gold and silver bullion dealer, has seen an increase in demand despite the pullback in spot prices. Last week, the online dealer had nearly 10,000 one ounce silver sunshine rounds. However, as metal investors continue to buy at lower prices, APMEX’s current supply of the popular silver rounds have dwindled down to less than 3,000.
Even though people have called into question gold’s safe haven status due to the recent US dollar strength, gold is still attracting buyers. Director of metals trading at Vision Financial Markets, David Meger said, “People are not going to be easily squeezed out of their investment based on longer-term, positive bias toward gold. It’s not a mentality among funds and individual investors that’s going to be easily shaken. We really have to see a dramatic fundamental change here to change the overall investment view that gold is a safe haven. We have seen an aggressive price decline, but fundamentally I don’t believe much has changed.”