Gold and the precious metals sector plummeted as a U.S. dollar rally and sovereign debt concerns in Europe spurred a fierce sell-off in gold. Gold finished the day lower by $44.50 at $1,065.15 per ounce as liquidation engulfed the entire precious metals sector - including gold futures, silver futures, gold stocks, and silver stocks. The U.S. Dollar Index (DXY) rallied to near 80 - its highest level since July 2009, when gold was trading below $1,000 per ounce. Equity markets also came under heavy selling pressure, with the Dow Jones Industrial Average falling briefly below the 10,000 level for the first time since November 6, 2009 before closing down 2.6% at 10,002.
The stronger dollar and weaker precious metals sector were fueled by growing anxiety over mounting deficits and sovereign debt issues in those nations that have come to be known as the “PIIGS” - Portugal, Ireland, Italy, Greece, and Spain. While Greece has received the most attention in recent months as it has sought to raise 53 billion euros to fund its 2010 budget deficit, Portugal and Spain were at the forefront of today’s concerns. According to European Commission forecasts, the public debt of Portugal will rise from 77% of GDP in 2009 to 91% by 2011, while in Spain the ratio of public debt to GDP is expected to rise to 74% from 54%. Investors have become increasingly worried that these European governments will have significant difficulties dealing with their budget deficits, and markets responded with the large rally in the U.S dollar and corresponding weakness in the euro currency and gold.
Despite the large selloff in gold futures, gold - the most prominent of the precious metals – received a strong endorsement from long-time gold bull Eric Sprott, the founder of Canadian investment firm Sprott Asset Management. In an interview today from Toronto, Canada Sprott stated that he has “no trouble imagining” a gold price of $1,500 per ounce in 2010 and $2,000 price of gold by the end of 2011 as the U.S. government continues its quantitative easing programs and as worries over sovereign debt in Europe escalate. Based on regulatory filings as of November 30, 2009 Sprott’s Canadian Equity Fund had approximately 39% of its assets in gold bullion and another 34% in gold mining stocks.
From Sprott’s perspective the longer it takes the U.S. economy to recover the more money the Federal Reserve will print. In turn, more money printing by Ben Bernanke will lead to further debasement of the U.S. dollar, which will benefit gold, gold futures, and the entire precious metals space.
