May 10, 2012

Why Are Gold and Silver Dropping?



“Why are gold and silver dropping?”

The tone of my client’s voice was like that of an 8 year-old boy who realized it was raining the entire day of his birthday. That’s just not fair! If things are so bad in the US and world economies, then why are gold and silver dropping in price instead of sky-rocketing up? It doesn’t make sense.

The short term answer remains that gold and silver are being traded against the US Dollar. When the US Dollar is strong, gold and silver are weak, and visa-versa. Now enter this week. In the last few days, France elected a socialist prime minister that’s committed to using spend-and-borrow policies to pull Europe out of this recession funk they’ve gotten into. Greece also had an election and overwhelmingly elected minority parties opposed to making financial peace with the rest of Europe. So the short term (and long term) prospect for Europe solving their financial issues is looking very grim. So grim, in fact, that everyone has completely forgotten about our domestic financial problems in the US, and the US Dollar is doing quite well, all things considering.

Now let’s go back to gold and silver. When the Dollar does well, gold and silver tend to have a bad day. And since Europe is doing badly, the US Dollar is doing well, and gold and silver keep dropping . . . you get the picture. If you think anything is changing over the long run, check out this little YouTube video explaining how the 2013 Budget deficit will be greater than the entire non-entitlement spending of the Federal government. Basically, if we balanced the US budget, there wouldn’t be a single dollar to spend on military, security, education, or a single Federal program!