GOLD PRICE NEWS - The gold price hovered near unchanged Wednesday morning, trading at $1,191 per ounce. The gold price has now declined $77, or 6.2%, over the past two weeks. The price of gold has fallen alongside the U.S. dollar, which has dropped 5.3% over the past five weeks as measured by the U.S. Dollar Index (DXY). The historical inverse relationship of the U.S. dollar to the gold price has broken down, leaving investors and traders scratching their heads trying to gauge the next move in gold and the currency markets.

The weak gold price has pressured the share prices of gold producers and explorers, many of which have seen 10%-plus sell-offs over the past ten trading sessions. The Philadelphia Gold and Silver Index (XAU), a basket of the world’s largest gold stocks, has now given up all of its year-to-date gains. The XAU is now 15% off its December 2009 high - despite the fact that the gold price is off a mere 2.9% over the same time frame.

In tandem with the gold price and the share prices of gold producers, the stock market is in the midst of a severe correction. The S&P 500 has declined 15.6% off its April 2010 high, leaving it down 7.8% this year. As investors see their 401Ks drop and scant improvement in the housing and jobs market, confidence is waning. Politicians, investment strategists, and economists are beginning to lobby for a renewed, more aggressive policy response. Calls for additional stimulus are becoming more boisterous the further the market declines. Deflation worries have escalated, sending down stocks, commodities, and pressuring the gold price.

Paul Krugman, Noble Prize-winning economist and New York Times journalist, is again pressing his case for more aggressive Keynesian deficit spending. Krugman said the U.S. should use “everything we can” to boost GDP and jobs in order to prevent a “very long siege.” He called for another round of quantitative easing, or money-printing, whereby the government creates dollars in order to purchase assets in the private market. These policy remedies have been one of the drivers of a higher gold price over the past eighteen months.

The long-term implications of such policies are likely ongoing currency debasement, a fact evident in the record highs posted in the gold price in terms of nearly every developed currency across the globe. Jim Rogers, co-founder with George Soros of the Quantum Fund, told Bloomberg that investors should sell bonds and buy commodities, including precious metals, such as gold and silver. The eccentric investor, who once travelled around the world on a motorcycle, has forecasted a $2,000 gold price, but did not elaborate on a time frame.

Rogers hesitated to recommend buying gold at this exact time, stating “I do own gold” but “gold has been extremely strong of late…I’m not rushing out to buy gold.” Rogers pressed his case for agricultural commodities, noting that “Agricultural commodities are desperately cheap compared to 20, 30, 40 years ago. Not many things are 75% cheaper than 36 years ago, but that’s true of sugar.”