GOLD PRICE NEWS - The gold price opened the new quarter lower, falling $5.00 to $1,238.65 per ounce. The price of gold once again demonstrated its resiliency in the face of liquidation on Wall Street, finishing up yesterday amid renewed turmoil in the stock market. For the second straight day, the gold price finished in positive territory while stocks and cyclical commodities tumbled. The Dow Jones Industrial Average (DJIA) ended the second quarter lower by 10% at 9,774.02 as investors fret over the threat of a double-dip recession.
In contrast to the DJIA, the gold price finished the second quarter of 2010 with a gain of 11.7%. The $130.25 rally in the price of gold over the past three months was the seventh consecutive quarterly gain for the yellow metal. Strength in the gold price came amid the Dow Jones Industrial Average posting its worst three-month stretch since the fourth quarter of 2008 - the depths of the financial crisis. Year-to-date the gold price is now higher by 13.5% versus a 6.3% decline for the DJIA.
With the gold price continuing to outperform stocks and commodities, the latest firm to reiterate its positive outlook on gold was UBS. In a report to clients the investment bank wrote that it “remains confident” that the price of gold can rise to $1,500 per ounce in next 12 months. Analysts at UBS went on to say that many developed countries have significant public debt balances that cannot be sufficiently addressed with expenditure cuts, higher taxes, and economic growth alone. Central banks will therefore need to continue to print money and let inflation erode the debt burden - a backdrop supportive of higher gold prices. The report noted that the “fundamental advantage of gold over paper-based currency” should also fuel demand for gold from central banks.
As a result of its bullish outlook on the gold price and entire precious metals sector, UBS upgraded its target price on shares of a number of gold and silver stocks. The firm raised its price target on Barrick Gold (ABX), the world’s largest gold mining company, to $57.50 from $53.50 per share. For Newmont Mining, the largest U.S.-based gold miner, the firm lifted its target to $68.00 from $62.00 per share. Other notable names on which UBS increased its target price included Agnico-Eagle Mines (AEM), Goldcorp (GG), Kinross Gold (KGC), Coeur d’Alene (CDE), and Pan American Silver (PAAS).
Gold stocks, as measured by the Market Vectors Gold Miners ETF (GDX), finished the month of June and the second quarter up 4.2% and 17.0%, respectively. A stronger gold price and a shift into gold-related investments by retail and generalist institutional investors helped drive the share prices of gold producers and explorers higher. SPDR Gold Shares (GLD), the largest gold bullion ETF in the world, now holds over 42 million ounces of gold - valued at 52.7 billion using the current gold price.
Heading into the second half of the year, it looks like a pretty good bet that the gold price will make it ten consecutive years of appreciation. The question now is: will the gold stocks provide the leverage to the gold price they have promised for years? A new class of investors is betting that the answer is “yes.”
