GOLD PRICE NEWS - The gold price bounced back Friday morning, rising $7.00 to $1,204 per ounce following yesterday’s $46, or 3.7%, decline. The price of gold plunged amid a flurry of negative economic data that sparked a new round of deflation fears. COMEX gold futures came under pressure early in the day as stop losses were triggered. The gold price cascaded lower, closing a mere $1 off its daily low of $1,197 per ounce. Oil and copper prices dropped in tandem with the gold price and head into the Fourth of July holiday weekend with year-to-date losses of 8.1% and 13.2%, respectively.
Gold stocks are higher heading into the open after yesterday’s drubbing that resulting from the plummeting gold price. The Market Vectors Gold Miners ETF (GDX) fell 4.5%, led by steep losses in Newmont Mining (NEM) and Barrick Gold (ABX). The Toronto Stock Exchange (TSX) was closed yesterday for Canada Day, so investors and traders will likely push down the share prices of gold companies on the (TSX) to account for yesterday’s correction in the gold price.
The euro is stronger versus the U.S. dollar this morning, rising to 1.26. The euro gained 2.4% yesterday on the back of a successful auction of Spanish government bonds. This lessened sovereign debt worries and subsequently helped to pressure the gold price, which has acted as a safe haven and store of value amid waning confidence in government debt. The correlation between the gold price and the currency markets is in flux as the traditionally negative correlation of gold and the U.S. dollar has, at least temporarily, broken down. Yesterday’s plunge in both the U.S. dollar and the gold price is stark evidence of the perils of relying too strongly on historical correlations.
The Labor Department released the June employment report Friday morning. Nonfarm payrolls contracted by 125,000 jobs while private payrolls rose 83,000. The unemployment rate fell to 9.5% from the previous month’s 9.8%. The drop in the unemployment rate was largely due to discouraged workers dropping out of the labor force. Mark Zandi, chief economist for Moody’s Analytics, told CNBC that “to maintain stable unemployment, the economy needs to create 150,000 jobs per month.” Zandi predicted that the unemployment rate would rise back above 10% “in the next six months.”
One of the chief factors that has driven the gold price above $1,200 has been the plethora of headwinds to global growth that have kept central bankers committed to easy monetary policies. Stubbornly high unemployment represents a strong headwind to the U.S. economy that is likely to weigh on consumer spending for months to come. Growth should stay subdued and central bankers will maintain their accommodative monetary policies far longer than most anticipate. The more severe the deflation threat becomes, the more aggressive Chairman Bernanke and the Federal Reserve will become printing money in order to prevent a collapse in the economy.
Corrections in the gold price over the last decade have often been violent, with each one bringing out a chorus of market prognosticators calling for end to gold’s bull market. Each time the gold price eventually regained its footing and moved on to make a series of new record highs. Negative real interest rates, global quantitative easing initiatives, and declining confidence in the integrity of fiat currencies continue to paint a positive fundamental backdrop for the gold price.
