GOLD PRICE NEWS - The gold price slid $10.24 to $1,183.86 Monday as the spot price of gold fell for the fourth consecutive trading day. At near $1,184 per ounce the gold price is now lower by 4.8% for July and is on pace for its worst month since its 7.1% plunge in December 2009. The SPDR Gold Trust (GLD), which serves as a proxy for the gold price, finished the session lower by 0.8% at $115.73 per share.
The weakness in the gold price pressured shares of most gold mining companies, as the Market Vectors Gold Miners ETF (GDX) retreated 2.1% to $47.53 per share - its lowest closing level since April 21. The Market Vectors Junior Gold Miners ETF - which is comprised primarily of gold explorers - fell 2.4% to $25.38 per share, for its lowest close since May 20. Notable decliners in the sector included Barrick Gold (ABX), Gold Fields (GFI), and Yamana Gold (AUY). Shares of ABX, GFI, and AUY finished the day lower by 1.4%, 3.5%, and 2.6%, respectively.
Since reaching its all-time of $1,265 in mid-June, the gold price has fallen 6.4%. However, as a wave of risk aversion has swept through the financial markets, the price of gold remains one of the only asset classes - along with U.S. Treasuries - to remain in positive territory year-to-date. While the gold price and U.S. Treasuries have benefited from waning rick appetites, one noted economist suggested that China, one of the largest holders of Treasuries, should reduce its holdings while demand for them remains strong.
Yu Yongding, a former academic advisor to the People’s Bank of China (PBOC) and presently a professor with the Chinese Academy of Social Sciences, wrote in the China Securities Journal that the nation should diversify their assets further into other currencies, as well as other financial instruments and real goods. “When demand for U.S. Treasury securities is strong, it’s a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much,” Yongding stated.
In a related story, Zhang Monan, a researcher with the State Information Center - a think tank under the National Development and Reform Commission - advocated in the China Securities Journal that the country should invest a greater portion of its foreign exchange reserves in hard assets such as gold. At $2.5 trillion, China has the world’s largest stockpile of foreign exchange reserves. Yet China’s gold holdings as a percentage of its forex reserves rank near the bottom when compared to the major economies across the globe.
While there is considerable debate amongst investors on the outlook for U.S. Treasuries, Mr. Yongding’s suggestion to sell when prices are high seems rather prudent. If China were to follow the advice of Mr. Monan and diversify into gold, such action would clearly be positive for the gold price and likely be a negative for the U.S. dollar. Moreover, given the complicated economic and political relationship between the U.S. and China, such a significant change in China’s economic stance could bring about more uncertainty and unintended consequences for the world economy - a situation that is also likely to be favorable for the gold price.
