GOLD PRICE NEWS - The gold price continues to struggle under $1,200 per ounce, unable to re-take the psychologically-important level. The price of gold has fallen 4.8% in the month of July, mirroring exactly the 4.8% monthly decline in the U.S. Dollar Index (DXY). The historical inverse correlation between the gold price and the U.S. dollar has completely broken down in recent months, offering another example of the perils of adhering to traditional investment maxims. The recent slide in the gold price has led to a marked drop in bullishness toward the gold sector.
Investment demand for gold has fallen in recent weeks, evidenced by the outflows from the SPDR Gold Trust (GLD), which has seen an 18.7 tonne drop in its gold hoard this month. The GLD, which is the second largest exchange-traded fund in the world behind the SPDR S&P 500 ETF Trust, has steadily accumulated over 41 million ounces of gold, valued at 49.5 billion using the spot gold price. Liquidation in the GLD has pressured the gold price in recent weeks.
Dennis Gartman, of the Gartman Letter, in a note to clients yesterday, reiterated the fact that he has “materially” reduced his exposure to the gold price, holding only an “insurance” position. “We are relatively unhappy and/or disconcerted by what we see gold doing in the market at the moment,” penned the widely-followed pundit. Gartman went on to express concern that “Gold market bulls have to be more and more concerned that the support that was evident last week at the $1,175-1,180 level shall be taken out on the downside.”The bearish outlook for the gold price expressed by Gartman is consistent with the growing bearish sentiment toward the yellow metal. Despite being a mere 1% off the $1,200 level, the outlook toward the gold price has shifted quite dramatically since the beginning of the year. For example, in December of 2009, the Market Vane bullish consensus figure toward the gold price stood at 94%, versus yesterday’s reading of 64%.
Despite waning bullish sentiment toward the gold price, Jefferies & Company analyst Michael Dudas, in a note to clients, presented the bullish case for both gold and gold mining companies. Dudas’ commented that the gold price should “benefit from recovery in commodities as global growth expectations return” and from “monetary accommodation.“ The Jefferies team highlighted their positive outlook on gold mining producers, commenting that “margin expansion should continue to provide support for share prices into the third quarter, a period that has provided seasonal support.”
Dudas noted that “We would continue to add to positions in our recommended names - Barrick Gold (ABX), Agnico-Eagle Mines (AEM), Coeur D’ Alene Mines (CDE), Hecla Mining (HL), and Newmont Mining (NEM).” While presenting a bullish case for the gold price and a number of gold mining companies, Jefferies did offer a list of risks to their outlook - including a “pricing reversal, a recovery in the dollar to new intermediate highs, added central bank selling, and expectations of higher real interest rates in developed economies.”
