GOLD PRICE NEWS – The gold price traded to yet another all-time high early Thursday morning, hitting $1,387 per ounce. The price of gold is soaring on the back of a plunging U.S. dollar, which fell to a 15-year low versus the Japanese yen early today. The U.S. Dollar Index (DXY) dropped to 76.39, a 10-month low, as investors sell dollars in advance of the upcoming Federal Open Market Committee – where Chairman Bernanke is expected to announce a new massive quantitative easing initiative. Gold futures on the COMEX rose $12.80 to $1,383.30 and are set to post their 17th record high in the past five weeks.
Gold prices accelerated upward following last month’s comments by Brazilian Finance Minister Guido Mantega, who warned of an impending “currency” war. With the global economy sputtering, there is a battle for exports and nations with strong currencies – such as Brazil – are disadvantaged. Central bankers are engaging a series of competitive currency devaluations and this is evident in the fact that gold prices are rising in terms of virtually all currencies. Over just the past sixty days, the gold price has rallied 12% in U.S. dollars and 7.8% an 10.5%, respectively, in terms of the Canadian dollar and British pound.
Niall Ferguson, Harvard professor and acclaimed author, in a recent interview at the World Knowledge Forum in Seoul, commented that “The United States is in a fiscal hole of monumental proportions and we have to get real about this.” Ferguson suggests that leaders must forge a currency pact similar to the 1985 Plaza Accord to deal with global imbalances. According to Ferguson, “At some point the Greek tragedy will happen to the United States if it carries on in this vein.”
As currency and trade tensions heat up across the globe, gold and investments tied to the gold price continue to rise. The SPDR Gold Trust (GLD), the largest gold ETF in the world and a proxy for the gold price, currently holds 41.3 million ounces of gold, valued at $56 billion using the current spot gold price. Investment demand for gold is also apparent in the rising share prices of gold producers and explorers. The Philadelphia Gold and Silver Index (XAU) has climbed 4.7% in October, bring its year-to-date gain to 24.6%. The XAU is comprised of the largest gold mining companies in the world, including Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM).
It is not solely gold prices that have been propelled higher by the weak dollar as of late. Stocks and commodities have both been under accumulation with the Reuters/Jefferies CRB index hitting a two-year high. The Fed appears to be willing to sacrifice the dollar in order to bring down the unemployment rate and prevent a double-dip recession.
Currency devaluation does not lead to prosperity and history is littered with currencies that have been printed out of existence by undisciplined politicians and central bankers. The end game of Bernanke’s money printing campaign may not be known for quite some time, but the surging gold price is a warning sign that there are consequences.