Gold Price Climbs to New Record Above $1,670

GOLD PRICE NEWS – The gold price soared to yet another record high early Wednesday, surging as much as $11.50 to $1,672.80 per ounce before backing off to trade just under the $1,665 level.  The price of gold has gained $165, or 11%, since the end of the second quarter, bolstered by a slew of soft economic data in the U.S.

Investment demand for gold, silver, and other precious metals such as platinum and palladium, continues to rise while the appetite for conventional stocks falls.  Even central banks have recognized the place precious metals should occupy in a portfolio, evidenced by this week’s news that the Bank of Korea recently purchased $1.24 billion of gold.  The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, traded to a record high early Wednesday, rising $0.00 to $162.00 per share.  COMEX gold futures, per the December contract, reached a fresh record high of $1,675.90 per ounce.

Silver rallied alongside the gold price as investors added to positions in precious metals.  Silver prices, which traded up near $41.00 per ounce this morning, spiked $1.57, or 4.0%, yesterday.  Strength in the price of gold and silver boosted precious metals equities with the Philadelphia Gold & Silver Index (XAU) rising 0.6% to 208.23.  Two of the top performing gold companies included Harmony Gold (HMY) and Royal Gold (RGLD), which advanced 7.0% and 3.5%, respectively.  Among silver shares, Hecla Mining (HL) and Wheaton (SLW) rose 2.0% and 2.9%, respectively.  Gold mining stocks moved higher Tuesday morning on the back of buoyant gold prices.

While gold shares are rising, they continue to lag the price of gold.  Year-to-date, the XAU has fallen 8.1%, compared to a 16.8% rally in the gold price.  Given this underperformance, other precious metals and the companies that produce them have garnered increased attention.

Platinum, which not only protects against the ongoing currency debasement engineered by the world’s central banks, but also offers exposure to global economic growth through its industrial element, has been the topic of a number of bullish reports by industry analysts.  GFMS, a leading metals consultancy firm, forecast in its annual Platinum and Palladium Survey that by the end of 2011 platinum will be “comfortably north” of $1,900 – well above its current price of $1,780 per ounce.

While there are numerous publicly-traded gold equities across the globe, there exists only a small set of platinum-focused companies.  Platinum Group Metals (PTM.TSX, PLG: AMEX) controls a substantial land package on one of the world’s most prolific platinum-producing belts in South Africa.  Since October 2008, shares of PLG have climbed 187%, providing investors with significant leverage to the platinum price.

Platinum Group Metals took an important move forward this week with the signing of a mandate letter with Barclays Capital, The Standard Bank of South Africa, West LB AG and Caterpillar Financial SARL for a $260 million project finance loan to develop its Western Bushveld Joint Venture (WBJV) Project 1 Platinum Mine.  The proposal was preliminarily approved by each of the proposed lenders but is subject to due diligence, final credit approval and execution of a loan agreement.

Barclays Capital is a premier full service global investment bank with a substantial presence in the mining & metals sector and in South Africa.  Barclays’ commodities business is ranked in the top three globally, and has a long history providing debt and risk management solutions to mining companies.

With fiscal and economic concerns escalating in the United States, Europe, and Japan, central banks in these nations remain in a race to debase their currencies to stimulate economic growth.  As a result, investors have moved into investments tied to the price of gold, platinum, and other precious metals for inflation protection.  Given the severity of the economic problems, this trend does not appear likely to end in the foreseeable future.

Yesterday’s gold price rally and weakness in the broader markets followed the latest in a series of disappointing reports on the status of the U.S. economy.  Personal spending for June fell 0.2%, below the 0.1% increase expected by economists.  This marked the third straight trading day of worse than expected economic data – following Monday’s ISM report and last Friday’s GDP data.  The worse the economy becomes, the more pressure is likely to build on the Federal Reserve and Chairman Bernanke to launch a third round of quantitative easing (QE3) – and the better the gold price outlook becomes.

Along with the economic worries, markets remained concerned yesterday over the fiscal health of the U.S.  Many economists and investors chastised the deal struck by politicians to raise the debt ceiling, citing a lack of meaningful reforms to cut government spending.

David Rosenberg, chief economist and strategist at Gluskin Sheff, expressed his frustration over the debt agreement’s shortcomings in a note to clients:  “This is a historic bill? Waiting for a toothless commission to come up with hard decisions for the future? The deficit reduction of $2.4 trillion over the next ten years falls well short of the $4 trillion that the rating agencies were looking for.”

The combination of U.S. economic weakness and central bank purchases of gold were the latest in a growing set of factors driving the yellow metal to new all-time highs.  In 2010, central banks as a whole became net buyers of gold for the first time in over a decade.  With these trends firmly in place, the gold price’s record-setting run is unlikely to end anytime soon.