GOLD PRICE NEWS - The gold price rallied $11.31 to $1,209.81 Friday as the price of gold rebounded above the $1,200 level. With today’s advance the spot gold price cut its weekly loss to $1.54, following last week’s $43 plunge. For the month of July, the gold price remains lower by $33.84, but higher by $114.48 year-to-date. The SPDR Gold Trust (GLD), which serves as a proxy for the price of gold, finished higher by $1.15 at $118.36 per share.
Gold stocks followed the gold price higher, as the Market Vectors Gold Miners ETF (GDX) climbed $1.10 to $50.48 per share. The 2.2% rise in the GDX was the gold stock ETF’s best day in two weeks. Notable advancers in the sector included Eldorado Gold (EGO), Freeport -McMoRan Copper & Gold (FCX), and IAMGOLD (IAG) - which posted gains of 4.6%, 4.5%, and 3.7%, respectively. One notable decliner was Randgold Resources (GOLD), which fell 0.9% after Goldman Sachs downgraded it from “neutral” to “sell” as its shares are pricing in most of the benefit from the rising gold price. Goldman also cut AngloGold Ashanti (AU) from “neutral” to “sell” for the same reason, but shares of AU managed to finish higher by 0.7%.
Friday’s strength in the gold price came as the euro slid a modest 0.3% to 1.2643 against the U.S. dollar. In spite of today’s decline in the euro, the currency has surged from below 1.20 to as high as 1.2725 over the past six weeks amid a moderation in concern over the European sovereign debt crisis. Given the euro’s increasing significance in the global economy, it has received a great deal of attention throughout the past year. The latest high-profile investor to provide his view on the present state of affairs in Europe was George Soros, the legendary investor best known for founding the Quantum Fund with Jim Rogers in the early 1970s.
In a New York Times op-ed titled “The Crisis & the Euro,“ Soros discussed the structural shortcomings in the Eurozone and the manner in which they contributed to the current problems. Soros stated that the euro was a flawed currency from the start because the Maastricht Treaty established a monetary union without a political union - and a shared central bank with no common treasury. The “gravest” risk is that under the Maastricht Treaty there is no mechanism to enforce that countries abide by the 3% limit on budget deficits as a percent of GDP. The trouble is that countries have swayed so far from these benchmarks that the integrity of the agreement is under attack. Furthermore, in attempting to return to required levels, they are implementing policies which could set in motion a deflationary spiral.
Soros went on to chastise Germany for trying to enforce austerity measures upon other nations, a fact which has further pressured the euro currency this year. Because Germany is the largest exporter in Europe and has the strongest economy of any European nation, it benefits most from the weaker euro. However, it is doing so at the expense of other nations, and “endangering the European Union.”
The implications for the gold price are clear. If the turmoil in Europe worsens on account of Germany’s actions, as Soros discussed, the euro currency is likely to retest its four-year low near 1.20 against the U.S. dollar. Just one month ago many investors and strategists were calling for the euro to reach even 1.10, or perhaps parity against the greenback. Under such a scenario the gold price is likely to benefit substantially, as investors lose faith in the sustainability of a currency held together by nations with different economic agendas.
