GOLD PRICE NEWS – The gold price climbed $4.00 to $1,502 per ounce Tuesday amid broad-based strength in the commodity complex. The price of gold has fallen for three consecutive sessions in dropping below the psychologically-important $1,500 per ounce level. Silver rebounded alongside gold, gaining over 1% to $34.01 per ounce. Crude oil and copper rose 1.6% and 0.8% to $$92.09 per barrel and $4.10 per pound, respectively.
The gold price began the week with a modest loss, falling $7.27, or 0.5%, to $1,495.37 per ounce. The sell-off in the price of gold developed as indications that a widespread European sovereign debt crisis could be avoided. Silver dropped alongside the gold price, sinking $0.76, or 2.2%, to $33.55 per ounce.
While the gold price moved lower, gold equities held up. The AMEX Gold Bugs Index (HUI) hovered near unchanged, before settling fractionally lower at 500.77. Barrick Gold (ABX), the world’s largest gold miner, advanced 0.3% to $43.16 per share, while Goldcorp (GG) dipped 0.2% to $46.74 per share. Gold and silver mining stocks moved higher across the board Tuesday morning as buoyant gold prices and firm equity markets supported the sector.
In Europe, French banks agreed to roll over Greek debt two days ahead of a critical vote in Greece’s parliament on austerity measures – a requirement of additional aid from the European Union and International Monetary Fund. By reinvesting in new Greek debt over a 30-year time frame, policymakers hope to alleviate the pressure on Greece to repay investors. French bondholders are more exposed to Greek debt than any other euro-zone nation, at €350 billion in holdings.
Financial markets cheered the Greek news and the euro has risen over 1% to 1.43 against the U.S. dollar over the past 24 hours. Despite today’s gains, the gold price is now lower by 2.4% in June and is on pace for consecutive monthly declines for the first time since December 2009-January 2010.
J.P. Morgan analyst Michael Jansen addressed the recent gold price weakness in a note to clients, writing that “Why is gold weakening given events in Europe and building global inflationary pressures? Seasonally, gold tends to struggle late in Q2 and into early Q3. We think another reason is that general de-risking and position reduction is affecting gold, even if less so than the other precious and industrial metals.”
Jansen went on to say that “the USD is consolidating to a point that it may be encouraging profit taking on long gold positions…thirdly, the slower growth environment and move to inevitable fiscal consolidation has seen inflation expectations reduced even though actual inflation is worse than anticipated. Overall we remain bullish but look for more short term softness. Key support is $1465-$1475.”
As for the U.S. dollar, while it has rebounded in recent months, on Monday it retreated 0.3% against a basket of foreign currencies. The greenback’s slide coincided with worrisome results of a UBS survey of central bank reserve managers. Over half the 80 respondents – who manage over $8 trillion in assets – predicted that the dollar will be replaced as the world’s reserve currency by a portfolio of currencies within the next 25 years.
The survey’s latest results differed substantially from prior years, when the majority of respondents forecasted that the dollar would retain its reserve currency status. The central bank reserve managers were also noticeably more positive on gold this year, as more than 6% – compared to none in previous years – predicted that the most significant change in their reserves over the next ten years would be the addition of more gold. Furthermore, over the next year the respondents forecasted that the price of gold will be the best performing asset class, citing sovereign debt defaults as the principal risk to the global economic landscape.
The positive change in sentiment toward the gold price in the latest survey echoed comments from Robert Zoellick, president of the World Bank. Zoellick recently proposed a new global monetary system involving a basket of fiat currencies – including the dollar, euro, yen, pound and renminbi – as well as gold.
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