Gold Price Climbs to $1,553, Euro Crisis Escalates

GOLD PRICE NEWS – The gold price climbed $9.11 to $1,553.31 Monday amid growing fears over the European sovereign debt crisis.  The price of gold rose to as high as $1,557.20 per ounce this morning, just 1.3% shy of its $1,577.40 all-time record high, reached on May 2 of this year.  Equity markets around the world tumbled, while U.S. exchanges were set to open substantially lower.

Alongside the gold price, the U.S. dollar was one of the few asset classes moving higher on Monday.  The euro currency came under considerable pressure against the dollar, falling 1.4% to 1.4022.  Silver prices held near unchanged at $36.71 per ounce, while cyclical commodities including oil and copper suffered steep declines.

On Friday the gold price climbed $10.80, or 0.7%, to $1,543.25 per ounce after the June nonfarm payrolls report came in far below expectations.  After hovering near $1,525 per ounce prior to the release of the jobs data, the price of gold spiked to an intra-day high of $1,546 and maintained the large majority of its gains throughout the day.  For the week, the spot gold price advanced 3.8%, its best gain since a 4.8% surge from October 30 through November 6, 2009.

Silver held firm alongside the gold price, rising $0.27, or 0.7%, to $36.69 per ounce.  For the week, silver jumped 8.6%.  However, this marked silver’s best weekly gain since an 8.9% spike from November 2-5, 2010.  On a year-to-date basis, the price of gold and silver are now higher by 18.6% and 8.6%, respectively.

Gold and silver shares posted fractional losses on Friday, but outperformed the broader market indices.  The Philadelphia Gold & Silver Index (XAU) dipped 0.2% to 207.81, compared to a 0.5% sell-off in the Dow Jones Industrial Average (DJIA).  Two notable gold companies to finish the week in positive territory were IAMGOLD (IAG) and Kinross Gold (KGC), which rose 0.3% and 0.5%, respectively.

The June jobs report consisted of just an 18,000 increase in nonfarm payrolls, far less than the 105,000 consensus estimate among economists.  Moreover, the figure came well south of the minimum estimate of 60,000 among Wall Street economists, and was the smallest number of jobs added since September 2010.  The unemployment rate unexpectedly rose to 9.2%, while the U-6 rate – which many consider to be a more accurate reading on unemployment – climbed four tenths to 16.2%.

Jan Hatzius, chief U.S. economist at Goldman Sachs, wrote in a note to clients that “Overall the June Employment Report was quite disappointing, with basically no positive offsets to the poor headline results. The best we can say is that other data have shown better signs in recent weeks, including jobless claims, chain-store sales, gasoline prices, and auto production. Nevertheless, the weak trend in payroll employment indicates some downside risk to our second half growth views.”

Coupled with the worse than expected jobs report in May, the June data has already led to calls for the Federal Reserve to implement a third round of quantitative easing (QE3).  Chairman Ben Bernanke has on many occasions highlighted the crucial impact that the nonfarm payroll reports have on monetary policy, and the latest data is likely to cause the Fed to maintain its dovish stance for longer than previously anticipated.  This view became evident on Friday in the Fed Funds futures market, where the likelihood of a Fed rate hike by mid-2012 declined from near 30% to 8%.

Negative real interest rates has been one of the most significant catalysts behind the gold price rally in recent years.  With the Fed now expected to keep rates on hold for the foreseeable future, the price of gold is likely to receive an even stronger tailwind.  Furthermore, as hedge fund magnate Eric Sprott predicted earlier this week, if the Fed does indeed launch QE3, the gold price could very well explode to the upside.