GOLD PRICE NEWS - The gold price surged higher Wednesday morning, rising $13.62 to $1,212.50 per ounce. Just 2.9% off its record high of $1,249.50, the price of gold has rallied $46.20 off its low of just three trading days ago. Risk appetites returned to the market yesterday, driving stocks, commodities, and precious metals higher - price action that appears set to continue today. Commodity currencies such as the Australian and Canadian dollars, which have been under pressure over the course of May, strengthened on the back of higher oil, copper, and gold prices.
Sentiment toward the broader commodity complex, as well as toward the gold price, has deteriorated lately as price declines soured investors’ outlooks for global economic growth and for their willingness to buy anything other than government bonds. The research team at Macquarie Securities, led by analyst Steven Harris, told clients, “With everyone already bearish, the path of least resistance may be up. If the euro (which is clearly now seen as the risky asset at the heart of the European sovereign debt crisis) can manage to rally, will other risky assets be far behind?” The report also highlighted the tepid sentiment outlook for the gold price, noting that “We continue to see gold reaching $1,500/oz. this year.”
Gold stocks staged a significant reversal yesterday afternoon. After hitting a low of $46.89, the most widely-held gold stock ETF, Market Vectors Gold Miners (GDX), rallied 4.4% to close at $48.94, up 2.7% on the day. Barrick Gold (ABX), the world’s largest gold producer, led the gold stocks higher on the back of an upgrade to “Buy” at Deutsche Bank. Gains in gold miners occurred across the board with Andean Resources (AND.TSXV) and San Gold (SGR.TSXV) leading the way in the mid-and small-cap strata, rising 11.9% and 7.8%, respectively. Gold stocks were looking higher in pre-market activity on the back of a higher gold price as ABX rose 1.8% and the GDX climbed 2.3%.
Investor demand for physical gold is exploding and gold bullion ETFs are gaining in popularity. Sprott Asset Management announced yesterday a follow-on offering of 18 million trust units of the firm’s Sprott Physical Gold Trust (PHYS) - with an underwriter over-allotment option of 2.7 million additional units. The proceeds will be used to “acquire physical gold bullion,” expected to amount to roughly 200,000 troy ounces of gold. The hedge fund magnate and successful resource investor, Eric Sprott, has not been shy about his bullish outlook for the gold price, telling CNBC on April 15 that his firm is essentially “all-in” with respect to gold and gold stocks.
Echoing Sprott’s views on the future direction of the gold price is the analyst and research team at Scotia Capital. Scotia believes that, amid the ongoing sovereign debt crisis, investors will “continue to hedge the instability and look for somewhere to hide outside of paper money.” The gold price will benefit as government-driven liquidity breeds inflation, according to the report. Scotia analysts recommended using “the expected weak gold price and precious metals valuations in late May to early July as a time to buy the precious metals stocks that offer the best leverage to rising gold and silver prices
Calling for new record highs in both the gold price, as well as the silver price, “by year-end“ the Scotia team highlighted Barrick Gold (ABX), Red Back Mining (RBI.TSX) and Minefinders (MFN) as the firm’s “Top Picks.”
The report also stated that IAMGOLD (IAG) and Silver Wheaton (SLW) both represented potential “Trading Ideas” when “it looks like we have hit the bottom of the gold and silver price correction.”
