GOLD PRICE NEWS - The gold price tumbled $16.33 to $1,192.75 Friday as the price of gold suffered from broad-based liquidation. The SPDR Gold Trust (GLD), the most liquid proxy in the equity markets for the gold price, finished lower by $1.56 at $116.67 per share. With today’s sell-off, the gold price extended its weekly loss to $17.85, or 1.47%, and its monthly decline to $50.90, or 4.09%. Furthermore, the gold price finished lower for the fourth consecutive week, for the first time since January 11 - February 5 of this year.
Gold stocks tumbled alongside the gold price, with the Market Vectors Gold Miners ETF (GDX) dropping $1.63, or 3.2%, to $48.54 per share. Notable decliners in the gold sector included Agnico-Eagle Mines (AEM), Barrick Gold (ABX), and Yamana Gold (AUY), which posted losses of 3.7%, 3.1%, and 3.7%, respectively. The GDX closed the week lower by 3.8%, and is now down 6.6% in the month of July.
The gold price has undergone an 5.7% correction from its all-time high of $1,265 reached last month at the same time the currency markets have become substantially more volatile. This trend is perhaps best illustrated by the surge in the euro/U.S. dollar currency cross, which has advanced from a four-year low of 1.1874 to 1.30 over the past six weeks. The strength in the euro has come amid lessening sovereign debt turmoil in Europe.
Leo Isaak, founder of Axios Capital Advisors, provided his outlook on the euro recently, stating that the recent rally has reminded him of the summer of 2008, when the currency surged toward 1.60. According to Isaak, the main catalyst for the euro’s recent rally was that Greece and Spain have been able to successfully sell debt securities with help from the European Central Bank (ECB).
Isaak went on to contend that Greece simply does not have the economic ability to pay these debts and will have to restructure. While many will argue that the budget deficits are being decreased, Isaak responded “That’s great, but they’re still operating in a deficit. I guess people forget that a deficit is a negative number. It’s hard to climb out of a hole when you’re still digging it.”
As for Spain, Isaak argued that the country is in a depression. It faces 22% unemployment with a shocking 40% unemployment rate among those under 25. Its municipalities are nearly bankrupt, and as Isaak puts it, “the housing sector is so depressed it makes the US market look downright cheery.”
Given his negative outlook on the euro, Isaak discussed his recent decision to short the currency, believing that the downside risks at the present time are substantial. While the correlation between the gold price and the euro has declined substantially this year, if European economies deteriorate in the manner that Isaak suggested, the gold price is likely to benefit considerably.
