Gold and silver both took a tumble on leap day, Feb. 29.
Gold had been enjoying a relatively stable February, generally
hovering at the $1,720 to $1,740 an ounce level before climbing to
$1,790 an ounce toward the end of the month.
On Feb. 29, gold dropped below $1,700 — in the process tumbling $70
in one hour — as the market interpreted comments by Federal Reserve
Chairman Benjamin Bernanke in his semi-annual report on the economy
before the House Committee on Financial Services that warned of a
continued uneven economic recovery.
After closing in London at $1,770, gold closed in New York at
$1,696.70 on Feb. 29 and recovered somewhat by mid-morning March 1,
when it reached a high of $1,726.10 an ounce.
The sharp 5 percent drop served as a reminder of gold’s volatility,
and the market’s interpretation of seemingly innocuous statements by
Chairman Bernanke was further proof of the uncertainty that is
currently driving markets.
Silver also suffered fast declines. After hovering at the $33 to $34
an ounce level for much of February, silver hit $37.41 an ounce on
Feb. 28 before dropping nearly $3 an ounce the next day. By
mid-morning March 1, silver was hovering at the $35 an ounce level.
Rep. Ron Paul, chair of the House Subcommittee on Domestic Monetary
Policy and Technology, questioned Bernanke at his Feb. 29 testimony,
using the opportunity to accuse Bernanke of debasing U.S. currency and
destroying the wealth of millions of Americans.
During the questioning, Rep. Paul held a private 1-ounce silver
round to teach a lesson on inflation. Rep. Paul said that while the
silver in that bullion piece could buy four gallons of gas in 2006,
today it could purchase around 11 gallons. Paul added, “That’s
preservation of value.” He also mentioned American Eagle bullion coins
during the hearing.
No doubt numismatic marketers will harness this opportunity to
promote American Eagle silver and gold coins as inflation busters.
Many rare coin dealers, already working on tight profit margins,
were justifiably shaken by the sharp decline in gold. An increasing
number of dealers at the local and regional level are using strategies
to hedge their positions in precious metals to protect them from quick
drops and corrections in the precious metals marketplace. ■