Spot gold and silver ended off 1.9% and 4.3% respectively Friday, falling with oil as the U.S. dollar gained after OPEC left its production target unchanged at a meeting on Thursday. “It is a brave new world,” declared one analyst quoted by Reuters, “OPEC is clearly drawing a line in the sand at 30 million barrels per day. Time will tell who will be left standing.”
“If the latest oil shock – this time in a southerly direction – creates knock on effects, we will hear a great deal about systemic risks in the days and weeks ahead, Recall that gold at first went south in the crisis of 2007-2008 and then headed sharply higher as investors moved to shore up their portfolio’s against the possibility of a showdown on Wall Street and within the banking system.
We are in a much different situation today than we were back then and the system as a whole still suffers from the damage done by the last crisis. If a crisis were to hit today, it would start with a much weaker line-up on the playing field than the last time around. Keep in mind too that all of this has occurred because quantitative easing on a global basis simply has not worked.
We suspect that gold and silver demand will grow stronger even if the price weakens, or perhaps because the price weakens. Those who understand the virtues of gold ownership are not going to suddenly go to their national currencies, or the banking system, or the New York Stock Exchange as a defense. They will go to gold and silver.”