GOLD PRICE NEWS - The gold price advanced $11.44 to $1,203.57 Wednesday afternoon as the price of gold rebounded above the $1,200 level. Following yesterday’s $19 slide in the gold price, the yellow metal withstood further strength in the euro to cut its decline this week by more than half. For the month of July, the gold price is now lower by $40.08, or 3.2%, but remains higher by $108.24, or 9.9%, year-to-date.
For most of 2010, movement in the price of gold has been inverse to that of the euro, as the gold price has been seen as a safe haven amid the European sovereign debt crisis. On Wednesday, however, the gold price rallied at the same time the euro continued its advance, rising 0.2% to 1.2650 against the U.S. dollar - its highest level in nearly two months. While the traditional relationship between the gold price and the U.S. dollar has broken down this year, today’s move was in line with historical correlations.
Gold stocks climbed alongside the gold price, as the AMEX Gold Bugs Index (HUI) -comprised of the world’s largest gold miners – rallied 2.6% to 458.34. With today’s advance, the HUI cut its monthly loss to 3.6% and extended its year-to-date gain to 6.6%. Notable advancers in the sector included Yamana Gold (AUY), Goldcorp (GG), and Newmont Mining (NEM) - which posted gains of 2.8%, 2.1%, and 2.3%, respectively, in afternoon trading.
The yellow metal received increased attention on Wednesday from China when the State Administration of Foreign Exchange said gold “cannot become a main channel for investing our foreign exchange reserves.”
Noting the limited size of the gold market, the statement, which was released in a question and answer format, noted that if China were to purchase a large amount, it would “surely push up the global gold price” making it more expensive for Chinese consumers to purchase gold jewelry. Even if China were to double its official gold holdings -presently at 1,054 tonnes - the proportion of gold in its reserves would rise only by one or two percentage points.
The statement may be intended to quell rising speculation that China is looking to diversify its foreign exchange reserves by purchasing more gold - in part because of concerns over the value of reserves held in paper currencies of countries which have initiated unprecedented levels of fiscal and monetary stimulus. Several other nations have added to their gold holdings over the past year, while virtually none has sold. The conversion of central banks from net sellers to net buyers of the yellow metal in recent years has been a significant driver for a higher gold price, and China’s latest comments notwithstanding, it does not appear that this trend is going to change in the near future.
