GOLD PRICE NEWS - The gold price opened Thursday marginally higher at $1,186.75 per ounce. The correction that began in late June after the gold price topped out at a record high of $1,265 per ounce has led to a severe drop in bullish sentiment toward the price of gold. Market Vane bullish sentiment toward the gold price is currently 62%, a reading near the low-end of its five-year range.
The shares of gold companies have dropped in tandem with the gold price. Newmont Mining (NEM), the only gold producer in the S&P 500 has declined 8.2% over the past two weeks while Barrick Gold (ABX), the world’s largest gold miner, has dropped 11.7% off its late-June high print. Small- and mid-cap gold producers and explorers have seen even deeper drops, with some shedding over 20%.
Weakness in the gold price has been mirrored by the broader stock and commodity markets, which have also faced liquidation pressures. In a recent interview conducted by Gregory Zuckerman of the Wall Street Journal, David Rosenberg, Chief Economist and Strategist at Gluskin Sheff and Associates, elaborated on the challenges facing the economy. Rosenberg, who correctly forecasted the credit crisis and recession well in advance of its actual occurrence, contends that the market moves in cycles, typically between 16 to 18 years. By his estimates, while we are more than half way through a secular bear market, there is still unfinished business on the downside. “In a secular bear market, these rallies are to be rented, not owned,” according to Rosenberg.
Rosenberg expressed concern that too much government involvement in the economy has simply swept the problems under the rug. The economist noted, “The dramatic government incursion into the macro landscape and capital markets obscured the fact that the economy is still in the throes of a multi-year credit contraction phase and as such what we can expect is for the pace of activity to weaken substantially during the periods when the stimulus fades.” Rosenberg forecasts that U.S. unemployment rates will stay in double digits for an extended period of time. With interest rates at miniscule levels, the opportunity cost of holding a sterile asset such as gold is minimal. The gold price has historically performed best when real interest rates are low, or negative - the current macro-economic backdrop.
When asked what should investors do with their portfolios, Rosenberg replied that a prudent strategy would be one which minimizes both volatility of the portfolio and correlation to the equity markets. Moreover, Rosenberg suggested exposure to the gold price as hedge against financial instability. Rosenberg quipped, “The world is awash with over $200 trillion of household, corporate and government liabilities” and “deflation works against debt servicing capabilities and calls into question the integrity of the global financial system.” Due to this Rosenberg has repeatedly emphasized his view that the price of gold is in a strong uptrend that could lead to a gold price in excess of $3,000 per ounce.
As Ben Bernanke and other central bankers continue to flood the market with more and more paper money, the gold price will appreciate. Rosenberg pointedly noted, “Gold is a resource that miners have to drill over two miles into the ground to obtain and production is lower today than it was a decade ago, the same thing cannot be said for fiat currency.” While corrections in the gold price, such as the current one, are often severe, the uptrend remains fully intact and the gold price looks set to rise for the tenth consecutive year.
