GOLD PRICE NEWS – The gold price declined Monday morning as a deal was finally struck between President Obama and House Republicans to raise the debt ceiling. When the news broke last yesterday, gold prices spiked as low as $1,607 per ounce. Stocks and cyclical commodities, such as oil, rallied on the announcement of a deal. Investors and traders who purchased gold as an insurance policy against a debt default liquidated positions. However, the price of gold rebounded back to $1,620 on lingering worries over the possibility of a credit rating downgrade. Whether the debt ceiling agreement went far enough to address the long-term fiscal issues facing the United States was being hotly debated Monday morning.
Last week, the gold price climbed to another set of new all-time highs amid not only growing concerns over the debt ceiling debacle, but also on the back of the news that U.S. gross domestic product figures came in much lighter than market expectations. GDP rose at a 1.3% annualized rate in the second quarter and Q1 GDP was revised downward to a mere 0.4%.
On Friday, the spot price of gold reached an intra-day record of $1,633, while COMEX gold futures hit $1,637.50 per ounce. The gold price rally came despite relative stability in the currency markets, as the U.S. Dollar Index started and ended the week near the 74 level.
Silver fell 1.2% Monday morning to $39.37 per ounce after last week’s underperformance versus the gold price. Silver’s industrial characteristics contributed to its decline, as it followed cyclical commodities lower.
Despite lower silver and gold prices this morning, shares of precious metals companies traded near unchanged Monday morning. The Philadelphia Gold & Silver Index (XAU) plunged 6.6% last week, marking the XAU’s first losing week since June 13-17 and cutting its monthly gain to 2.3%. Notable decliners last week included Agnico-Eagle Mines (AEM), Goldcorp (GG), and Newmont Mining (NEM) – as each released disappointing second quarter earnings results. AEM, GG, and NEM posted weekly losses of 12.0%, 11.8%, and 5.2%, respectively. Barrick Gold (ABX), one of the few gold mining companies to report results in-line with analyst estimates fell victim to the broader selling pressures, falling 5.3% on the week.
The price of gold advanced 8.4% gain in July, marking its best month since a 12.8% rise November 2009. The fact that July is historically one of the worst months for the price of gold speaks to the strength gold’s bull market and the various economic factors driving the gold price higher. Looking ahead, many investors and strategists see the gold price climbing in the months ahead. September is typically the yellow metal’s best month.
In a recent interview with King World News, long-time gold bull John Hathaway discussed his outlook for the gold price in light of the United States debt ceiling impasse. When questioned about the status of the U.S. dollar, Hathaway – who runs the Tocqueville Gold Fund – responded that “At the end of the day where are people going to go? Everybody’s invested in the euro and the dollar so the obvious alternative to all of this is gold. The problems that the US faces from a fiscal point of view didn’t just happen, it’s just that the debt ceiling is bringing it into focus.”
Hathaway noted that “Let’s also remember from a macro-economic point of view that all of these things which are creating pressure on government spending are very deflationary for the economy. A big source of job growth over the last twenty years and certainly in the last ten years has been government related jobs…So if you take that away and actually have some shrinkage in government jobs, that kind of leaves us in a state of perpetual high unemployment. That certainly from a political point of view will create all kinds of anxieties and civil disagreement (civil unrest).”
If the risks of deflation intensify, as Hathaway suggested, the Federal Reserve is likely to respond with additional accommodative monetary policies. Chairman Bernanke has made it very clear that the Fed’s main enemy is deflation, and has made assurances that the Fed will do everything in its power to try to prevent deflation from damaging the U.S. economy. The first two rounds of quantitative easing helped drive the gold price to new record highs, and QE3 speculation has escalated with the recent trend of weak economic data – highlighted most recently by Friday’s disappointing GDP report.
When asked about his gold price forecast, Hathaway stated that “Basically you have a very orderly rate of increase. If you go back to 1979 gold doubled in a single year, well it hasn’t doubled in any year in the last ten years. So as this move is ending it’s conceivable to me that you are going to see a doubling of the gold price from some higher level, but I feel very good about the sustainability of the current action in the gold price.”
Hathaway cited the approximately 13% gain in gold thus far in 2011 and noted “if you tack on another 10% in the second half that is not unsustainable in terms of the macro picture that I see.” Such a move would take the price of gold to approximately $1,788 per ounce.
Going forward, he contended that “What’s going to drive it (gold) crazy is when institutional buying starts to take place, and we really haven’t seen that (accelerated) sovereign wealth and (accelerated) central bank buying. That still lies out there and that’s the fuel that’s going to get the gold price up to numbers that I’m almost afraid to mention on air or in print.”
Colossus Appoints Former Barrick Executive to Board
- In 2009, Mr. Anthony was appointed Chief Operating Officer of African Barrick Gold, which listed on the FTSE in 2010 with a market capitalization of $3.8 billion.
- Mr. Anthony graduated from Queens University in 1979 with a Bachelor of Science in Mining Engineering (Mineral Processing)."
- In order to make room for Mr. Anthony, Dr. Vic Wall agreed to step down as a director of the Company, but will maintain his current Vice President, Exploration title and will continue to guide all exploration efforts at Serra Pelada.
