In the simplest terms possible, economics is about the laws of supply and demand. Scarcity increases prices and conversely when the supply of something increases faster than demand, the price should decline. Federal Reserve policies to hold interest rates down seem to be following this basic economic principle and appear to be pushing the dollar down.

The euro gained against the dollar as overseas investors worried about the U.S. going over the fiscal curb sending gold prices higher.

Gold was trading higher Thursday, up $2.97 to $1,670.49, and silver was up $0.14 to $31.17 bringing the silver/gold ratio to 53.5.

Gold and silver were joined on the upside by platinum while palladium, crude oil and copper all traded lower.

Gold has always been valued because of its scarcity. New gold mines were rarely found in the ancient world and even in modern times new discoveries have set off gold rushes all over the world. Modern technology has helped to identify all known gold reserves and within twenty years, the known reserves will have been fully mined. At that point, gold will be not only scarce but the supply will be almost permanently fixed.

Gold dropped sharply midday on Tuesday and never looked back with the price softness carrying over to trading early Wednesday.

In early trading gold is down another $2.20 to $1,673.98 and silver is off an additional $0.14 to $31.60 for a silver/gold ratio rising to 52.9. It was a mixed bag for commodities Wednesday morning with crude oil and platinum slightly higher while palladium and copper moved lower.

Some gold traders and analysts are crying manipulation at the current price moves, but that’s not unusual when a sudden drop catches them by surprise. Anyone who wasn’t aware the equity and commodity markets were being manipulated to the advantage of a handful of big players really hasn’t been paying attention. While the current price drop may be manipulation, it isn’t wildly different manipulation than we see every day.

There is quite a bit to think about in the most recent statements of the Federal Reserve. Policy makers have now pledged to keep interest rates low until unemployment reaches a level they think is acceptable as long as inflation remains subdued, coming in at less than 2.5 percent a year. The Fed failed to mention in their statement that subdued inflation can do significant harm to a retiree.

When someone reaches the age of 65, government data shows they can expect to live another 19.2 years, on average. Let’s say that you need $40,000 a year to live on in retirement. Maybe $15,000 of that will come from Social Security benefits, which is about the average annual benefit. Social Security is indexed for inflation although there have been discussions about using an alternative index for that purpose to hold the increases down.

Commodities were largely flat to slightly higher Tuesday as the market continues to drift sideways in the face of economic numbers that are overall positive.

Gold was up $1.39 to $1,698.49 and silver was up $0.15 to $32.40, for a silver/gold ratio of 52.4.

Industrial commodities are mostly higher by small margins including platinum and crude oil, while palladium and copper are trading lower.

Inflation means that prices are going up and a dollar is buying less now than it did in the past. That simple definition is not used by economists and policy makers to measure inflation. Over the years they have developed a variety of inflation gauges, including the Consumer price Index (CPI), which require a variety of assumptions. These assumptions, it can be argued, lead to an understatement of inflation when the official measures are compared to what consumers actually experience.

Markets were off to another lackluster start on Monday as investors dumped contracts on industrial commodities and overseas equity trading was mostly down.

Gold was trading weakly higher Monday morning, up $2.70 to $1,697.90 and silver is up $0.03 to $32.32 for a silver/gold ratio of 52.5.

The dollar is up against the euro but with commodity prices so disconnected from market fundamentals even that is no longer a reliable indicator of market direction. While gold, silver and crude oil are higher, platinum, palladium and copper are trading lower. Mainly markets are flat to slightly down, with prices shifting between small gains and small losses every few minutes.

In its latest statement, the Federal Reserve made a strong case for investing in gold. They may soon have more than $4 trillion on their balance sheet which could lead to inflation if the economy recovers. The success of the Fed’s policies could lead to inflation and the failure of the Fed’s policies will create even more inflationary pressures. Either way, gold seems like the best available way to hedge against the Fed’s actions.

The Federal Reserve now plans to maintain an easy money policy until unemployment falls to 6.5 percent. For now, they plan to add about $85 billion a month to the money supply while unemployment remains above that level.

To get to 6.5 percent unemployment today, 1.9 million jobs would need to be created. Obviously the Fed intends for unemployment to drop gradually which means the number of jobs needed is actually more than twice that number.

To say the precious metals market was unimpressed with the Fed’s new round of stimulus would be an understatement.  After an initial boost, gold prices turned south and never looked back.

Gold was down $15.06 in early trading to $1,693.90 and silver was off $0.64 to $32.69, for a silver/gold ratio of 51.8.

To be fair it wasn’t just gold and silver taking a hit, it was industrial commodities across the board.  Crude oil, palladium and copper were all trading lower and the biggest hit was reserved for platinum, trading lower by nearly $24 an ounce.