Gold Price Climbs on Dismal GDP Data from Europe

GOLD PRICE NEWS – The gold price advanced $12.50 to $1,779 per ounce Tuesday, spiking higher on the news that gross domestic product in the 17-nation Euro zone rose a mere 0.2%.  The price of gold, which sank as lows as $1,728 per ounce early yesterday, climbed following the weak economic data out of Europe.  Additional bond purchases from the European Central Bank are highly likely following Europe’s weakest GDP figure since the global economy was mired in a recession in 2009.  The euro fell to 1.438 against the U.S. dollar on speculation that the ECB will cut interest rates at its next policy meeting.

On Monday, the gold price began the week with a positive reversal amid weakness in the U.S. dollar and dovish commentary from a Federal Reserve President.  The price of gold initially rebounded over $30 from its morning lows alongside a potent advance in the broader commodities complex.  Silver prices fell $0.27 to $39.59 per ounce, moving lower after yesterday’s 1.6% advance.  Oil prices fell 1.77% to $86.35 per barrel Tuesday morning, posting the largest loss in the 19-member Reuters/Jefferies CRB index.

Precious metals equities were lifted higher yesterday by the strong move in the price of gold and silver, with the Philadelphia Gold & Silver Index rising 2.9% to 212.43.  An endorsement from UBS helped boost the gold sector, as the firm reiterated its Buy rating on a number of gold producers – including Goldcorp (GG), Kinross Gold (KGC), and Newmont Mining (NEM).  Shares of GG, KGC, and NEM finished higher by 2.4%, 5.1%, and 2.8%, respectively.

While the spot gold price posted a gain of $14.91, or 0.9%, at $1,761.82, the broader market also surged higher yesterday.  The Dow Jones Industrial Average (DJIA) climbed 213.88 points, or 1.9%, to 11,482.90.  Coupled with the gains from last Thursday and Friday, the Dow jumped 7.1%, marking its best three-day gain since March 2009.  Risk aversion continued to subside, with the CBOE Volatility Index (VIX) tumbling 12.4% to 31.87.  However, S&P 500 stock futures fell 15.00 to 1183.40 early Tuesday on the back of the dismal GDP figures out of Europe.

Gold prices, alongside equities and commodities, extended their gains on Monday following comments from Atlanta Fed President Dennis Lockhart.  In a speech on the outlook for the U.S. economy and monetary policy, Lockhart noted that although he does not expect an outright recession, the risks of one have notably increased in recent months.

As for the Fed’s response to the downturn in the economy, Lockhart stated that “If additional actions are required, I can assure you the Federal Reserve is not out of bullets.  Expansion of the balance sheet or changes in the composition of the Fed’s asset portfolio are available, in my view.  These could be quite effective, particularly if done in sufficient size, in the event that the economy retreats back into contractionary territory.”

Although Lockhart did not specify the potential size of any expansion to the Fed’s balance sheet, such a measure would likely result in a third round of quantitative easing (QE3) and be quite beneficial to the price of gold.

The gold price also received a boost from TD Securities, which reiterated its longer-term positive outlook on the yellow metal.  In a note to clients, the firm predicted that the price of gold will reach $2,000 per ounce in the coming months.

“Fiscal austerity in Europe and the US is likely to keep GDP growth modest at best,” TD Securities Head of Commodity Strategy, Bart Melek wrote, “which implies that sovereign debt risks are here to stay for the foreseeable future.”  Such an environment is “very supportive” of gold prices over the longer term, he contended.

Further strengthening the case for higher gold prices, Melek went on to say that “With the economic outlook quite poor and no room to maneuver on the fiscal side, gold investors are starting to speculate that western world central banks may need to resort to ‘heroic’ monetary actions to get their economies moving, including some form of monetization of government debt.”