Yesterday's Gold/Silver Prices - Sign of Times

By: Ian Campbell | Fri, Jun 8, 2012
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Why Read: It is very important to think about financial market psychology, trading patterns, and risk in these volatile and uncertain times.

Featured Article: Could be any one of many articles this morning that discusses the immediate significant drop in the physical gold and silver prices yesterday following U.S. Federal Reserve Chairman Bernanke's Thursday morning report to the U.S. Congress.

Commentary: That the price of both physical gold and silver fell immediately on Mr. Bernanke's rather soft comments and failure to introduce a further round of quantitative easing:

While it is fair to say that today current physical gold and silver pricing levels may prove to be higher or lower than they ought to be, it also has to be fair to say that yesterday's price drops for those two metals are 'short-term reactive' and hence meaningless in the overall scheme of things.

Gold Drops 2.6%, Silver 4.1% with Bernanke 'Moderate'
Source: Resource Investor, Adrian Ash, June 7, 2012
Reading time: 4 minutes

Also read: Gold's perception problem
Source: Mineweb, Geoff Candy, June 8, 2012
Reading time: 3 minutes

For an example of this same phenomenon, but in the context of an immediate drop today in the price of Spanish treasury bills (and hence an immediate increase in market driven Spanish treasury bill yields), in the face of Fitch Credit Ratings downgrading Spanish Government debt by '3 notches' to BBB see:

Spanish bond yields surge after ratings cut
Source: Deutsche Welle, June 8, 2012
Reading time: 3 minutes

Consider what the financial markets seem not to have known yesterday about Spanish Government credit risk that they now seem to have opened their eyes to this morning. The answer ought to be 'nothing', but seems not to be. This is simply a further example of 'don't think that just because someone wears an expensive suit that he/she is a good thinker'.

 


 

Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Economic Straight Talk

Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
* Canadian Institute of Chartered Business Valuators
** through The Ian R. Campbell Research Initiative

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