GOLD PRICE NEWS - The gold price closed up $0.29 to $1,117.25 in mixed trading despite U.S. dollar strength against the euro and the pound sterling. The price of gold was held in check as weak dollar beneficiaries have lagged such as gold, gold stocks, and commodities have lagged the broader market averages in recent weeks.
The price of gold managed a small gain notwithstanding rising confidence in the economic recovery, as evidenced by a number of deals announced over the weekend and a broad-based global equity market rally. Gold stocks extended their gains for a third consecutive day, as the Market Vectors Gold Miners ETF (GDX) rose $0.75, or 1.6%, to $44.64. The GDX remains lower by 3.4% in 2010.
Gold stocks have demonstrated their leverage to the gold price over the past few months, rising and falling at a multiple of the percentage change in the gold price. This leverage to the gold price worked to the upside in February as the Philadelphia Gold and Silver Index (XAU) and the AMEX Gold Bugs Index (HUI) rose 8.1% and 9.1%, respectively. While both indices remain in negative territory on a year-to-date basis, the gold stocks snapped a two-month losing streak that sent both the XAU and HUI down in excess of 20% off their December highs.
The equity markets advanced with the S&P 500 rising 1% to 1,115.71 after news broke over the weekend that AIG reached an agreement with Prudential PLC to sell its Asian life insurance business for $35.5 billion. However, news of deals and the expectation that the European finance ministers are finalizing details of a bailout for Greece did not help commodities. The stronger U.S. dollar kept the gold price under the $1,120 per ounce level and helped push crude oil down $0.93 to $78.30 per barrel. Copper was an exception, as it posted a 1.8% gain as concerns over supply interruptions rose as a result of the earthquake in Chile over the weekend.
The gold price has, up to this point, held up well in the face of a particularly strong U.S. dollar. While the U.S.-dollar denominated gold price has not made much headway in recent weeks, the gold price in terms of the euro and the pound is sitting just under its all-time highs. In coming weeks, the next move in the dollar-denominated gold price should emerge as visibility improves with respect to the Greek bailout, and how severe the austerity measures, notably spending cuts and tax increases, imposed on Greece turn out to be.
A relief rally in the euro could drive fund flows back into the gold price, while the failure to secure a rescue package would likely lead to further pressure on risk appetites, the euro, and the price of gold.
