Gold Price Surges to New Record High

GOLD PRICE NEWS – The gold price surged to a new all-time high Wednesday morning, rising to $1,578.70 per ounce.  The price of gold has risen 4.9% in July on the back of waning confidence in fiat currencies and renewed speculation that the Federal Reserve may consider a new round of quantitative easing.  Silver, despite being well off its multi-decade high print of $49.79 posted earlier this year, has climbed 6.5% this month and is currently trading at $36.95 per ounce.

On Tuesday, the gold price rallied $14.49 to $1,568.03 per ounce after the release of the Fed minutes and the news that Moody’s downgraded Ireland’s credit rating.  Gold shares surged higher alongside the gold price as the AMEX Gold Bugs Index (HUI) climbed 3.1% to 545.91.  With the rally in gold equities, the HUI extended its monthly gain to 4.7%, and reached its highest level in five weeks.  Three of the largest gainers among large-cap gold shares included Agnico-Eagle Mines (AEM), Gold Fields (GFI), and Harmony Gold (HMY).  AEM, GFI, and HMY finished higher by 3.5%, 4.6%, and 4.2%, respectively.  Gold mining stocks moved higher early Wednesday on the back of strong gold prices.

The latest Fed minutes – a recap of the June Federal Open Market Committee (FOMC) meeting – acknowledged the fact that the rate of U.S. economic growth slowed to a more moderate pace.  As a result, the Fed lowered its GDP estimates for the balance of 2011 and into 2012.  The GDP reduction “reflected the persistent weakness in the housing market, the ongoing efforts by some households to reduce debt burdens, the recent sluggish growth of income and consumption, the fiscal contraction at all levels of government, and the effects of uncertainty regarding the economic outlook and future tax and regulatory policies on the willingness of firms to hire and invest.”

The Fed also cautioned that several “downside risks” remain, including “the possibility of a more extended period of weak activity and declining prices in the housing sector, the chance of a larger-than-expected near-term fiscal tightening, and potential financial and economic spillovers if the situation in peripheral Europe were to deteriorate further.”

As for the likelihood of QE3, although the Fed minutes did not specifically refer to additional rounds of asset purchases, it did note that some FOMC members felt that “if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation.”

However, the minutes also noted that other FOMC members believed that “the withdrawal of monetary accommodation may need to begin sooner than currently anticipated in financial markets” based on their outlooks for higher inflation.

While the Fed continues to debate the prospects of QE3, the gold market appears to have already made up its mind.  With the gold price breaking out to new all-time record highs, investors are betting that a third round of money printing is not too far away.

Across the Atlantic, while turmoil in Italy and Greece has supported the gold price in recent days, the baton was passed to Ireland on Tuesday.  Moody’s cut Ireland’s credit rating from Baa3 to Ba1, placing it in junk territory.  The ratings agency also placed its Irish rating on outlook negative, indicating an increased likelihood of a further downgrade.

In its report, Moody’s wrote that “The main driver of today’s downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013.”

The Irish downgrade not only boosted the gold price, but helped pressure on the euro below 1.40 against the U.S. dollar.  As a result, the euro-denominated price of gold reached a new all-time high for the second straight day, climbing to €1,122.03 per ounce.