Gold Price Steady as Debt Ceiling Talks Continue

GOLD PRICE NEWS – The gold price climbed $1.50 to $1,615 per ounce Thursday morning, boosting by ongoing concerns that U.S. policy makers will be not reach an agreement to raise the debt ceiling by the fast-approaching August 2 deadline.  The price of gold is hovering just under its all-time high of $1,626 per ounce.  Despite a slightly stronger U.S. dollar this morning, precious metals held firm.  Silver traded at $40.26 per ounce, unchanged versus its closing price yesterday.

The research team at Dundee Securities highlighted the uncertain macro-economic climate in reiterating its bullish outlook on the gold price: “It’s hard to overlook the pervasive problems defining the global economic landscape. Greece’s debt was downgraded (again) by Moody’s to its second lowest possible rating of ‘Ca’, or to what Moody’s would describe as ‘bonds typically in default with little prospect for recovery’.”

On Wednesday, the gold price dipped $5.83 to $1,613.45 per ounce after earlier climbing to a new record of $1,626 in morning trading.  Gold prices turned lower amid a rally in the U.S. dollar and broad-based selling due to escalating concerns over the debt ceiling.  The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, closed with a loss of $0.58, or 0.4%, at $157.19 per share.  The GLD moved marginally higher Thursday morning, gaining $0.10 to $157.29 per share.

Silver did not hold up as well as the gold price, as it fell by $0.63, or 1.5%, to $40.26 per ounce.  Crude oil slid 2.2% to $97.40 per barrel, while copper retreated 1.0% to $4.43 per pound.  The broader equity markets faced heavy selling as well, with the Dow Jones Industrial Average (DJIA) plummeting 198.75 points, or 1.6%, to 12,302.55.  Risk aversion rose – evidenced by the CBOE Volatility Index (VIX), which spiked 13.6% to 22.98, its highest closing level since March 18.

Gold and silver shares posted steep losses, as the Philadelphia Gold & Silver Index tumbled 3.0% to 212.35.  This marked the XAU’s worst day since a 4.1% plunge on May 11 and extended the gold and silver share composite’s loss this week to 3.6%.  Two of the largest decliners among gold miners included Goldcorp (GG) and Kinross Gold (KGC), with losses of 3.8% and 3.7%, respectively.  Among silver shares, Silver Standard Resources (SSRI) and Silver Wheaton (SLW) fell 4.8% and 5.4%, respectively.

Wednesday’s liquidation on Wall Street was fueled by the ongoing debt ceiling turmoil in Washington, D.C.  At this point, not only do Democrats and Republicans appear nowhere near a compromise, but infighting has developed within the two parties own caucuses.  Considerable disagreement arose yesterday among Republican leadership and GOP House members, who claimed that House Speaker John Boehner’s debt plan did not go far enough to reduce government spending.

While the debt ceiling has remained on center stage in recent weeks, the Federal Reserve was back in the headlines on Wednesday with the release of the latest Beige Book.  The report noted that the pace of economic activity in eight of the Fed’s 12 districts slowed further in recent months.  The primary catalysts for the economic weakness included higher unemployment, the sluggish housing markets, and signs of a slowdown in manufacturing.

The Beige Book’s cautious tone, coupled with the legitimate possibility of a U.S. default, helped the gold price tread water as investors liquidated other dollar-denominated commodities on Wednesday.  Looking ahead, the economic backdrop for the gold price appears favorable, notwithstanding corrections due to broad-based market weakness.  CIBC analyst Barry Cooper wrote in a note to clients that “the robust outlook for bullion remains intact as we continue to see debasing of currencies as the key contributor to gold’s rise.”

Cooper elaborated on his bullish gold price stance, noting that “We believe that for one of the first times in recent history, all three major currencies (U.S. dollar, euro, and yen) could be in jeopardy of depreciation but given that all are assessed against one another, the impact may be muted.  Enter gold as the ultimate surrogate currency that is without debt encumbrances and we believe this is the reason to remain bullish on bullion.”