GOLD PRICE NEWS - The gold price continues to exhibit low volatility, opening Monday morning up $3.80 at $1,191.10 per ounce. The price of gold was one of the few asset classes to decline last week, sliding 1%, as confidence returned to the marketplace amid improved corporate earnings and a successful stress test of the European banking system. While the equity market was strong, investors liquidated investments tied to the gold price, notably positions in the SPDR Gold Trust (GLD), which has recently experienced outflows not seen in nearly a year.
After underperforming versus the gold price for the past quarter, commodities appreciated relative to gold over the past week - with the Reuters-Jefferies CRB Index hitting a one-month high. Copper is trading at $3.18 per pound, its highest level since early May. An improvement in risk appetites has buoyed the base metals and kept a lid on the gold price in recent trading sessions.
Gold stocks have been a holding pattern similar to the gold price, oscillating in a narrow band. The Market Vectors Gold Miners ETF (GDX) tacked on 1.4% last week, although the index is down 5.3% thus far in July. This week brings the release of earnings for the major gold producers with Newmont Mining (NEM), Agnico-Eagle Mines (AEM), and Goldcorp (GG) reporting on Wednesday while Barrick Gold (ABX), the world’s largest gold producer, releases their operating results on Thursday. With a second quarter gold price average of nearly $1,200 per ounce, investors will be looking for profit margin improvement.
The next catalyst for the gold price could be a resumption of quantitative easing (QE). In his semi-annual report to Congress last week, Fed Chairman Ben Bernanke noted that the outlook for the U.S. economy was “unusually uncertain.“ Bernanke hinted at the possibility of QE 2.0, telling lawmakers that the Fed was ready and willing to act if the economy slides into a double-dip recession. The $1.75 trillion of securities purchased by the Fed has helped spur the gold price to record highs. A resumption of a money-printing campaign by the Fed would likely cause the gold price to break out of its trading range and assault the $1,300 per ounce level.
Inflation concerns are minimal in global markets. Bond yields are at generational lows as two-year and five-year yields of 0.57% and 1.71%, respectively, indicate that bond vigilantes are in hibernation. Stubbornly high unemployment is the single biggest factor leading to deflation taking center stage. It is against this backdrop that central bankers are pursuing an inflationary campaign designed to help stimulate the private sector. This grand experiment may fail to engineer a sustainable recovery, while at the same time degrading the U.S. dollar. While the gold price remains in the midst of a correction, the fact that it is holding near $1,200 indicates that there is skepticism that Bernanke’s policies will indeed be successful.
Just last week, the White House raised its forecast for the fiscal year 2011 budget deficit to $1.4 trillion, or 9.2% of gross domestic product (GDP). Under the new projections, the federal debt is expected to reach 77.4% of GDP by 2020. House Minority Whip Eric Cantor told reporters that the United States “is on the brink of a debt crisis“ that threatens “our way of life.“ Deficits and debts continue to pile up, putting America in a weaker and weaker financial situation. This pattern is abundant throughout history as nations eventually stress their finances to the point where currency degradation accelerates. The gold price has been in a steady uptrend against this macro-economic backdrop, which shows no signs of improving in the foreseeable future.
