Gold Price Dives $92 in Last 30 Hours

GOLD PRICE NEWS – The gold price slid 2.5% Wednesday, declining $46.20 to $1,829 per ounce.  After trading to a new all-time high early yesterday, the price of gold has plunged $92 over the past 30 hours.  Cyclically-sensitive assets climbed higher with stock prices rising 1% as measured by the most actively traded S&P 500 futures contract.  Oil rose 1% to $85.90 per barrel while copper gained 1.1% to $4.12 per pound.

Speculation that President Obama will announce an economic stimulus package at a press conference tomorrow helped buoy stocks and commodities.  The U.S. dollar, which has rallied for six consecutive days as measured by the U.S. Dollar Index (DXY), moved lower versus its foreign counterparts.

On Tuesday the gold price climbed to another record high, but turned sharply lower as the day wore on as profit-taking engulfed the precious metals.  The spot price of gold initially rallied to a new record of $1,921, but settled with a loss of $25.00 at $1,875.20 per ounce.  The late-day sell-off resumed this morning.  The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, dropped to $177.96 per share, lower by $4.94.  Silver retreated in concert with the gold price, falling $1.37, or 3.2%, to $40.62 per ounce.

Gold equities headed lower Thursday morning, following the gold price to the downside.  Today’s sell-off comes after the AMEX Gold Bugs Index (HUI), a composite of the world’s largest gold companies, rallied to a new all-time high of 634.85 during yesterday’s trading session.  Barrick Gold (ABX) and Royal Gold (RGLD) were two of the top performers on Tuesday, rising 1.4% and 2.2%, respectively, while Agnico-Eagle Mines (AEM) and Gold Fields (GFI) each slid 0.8%.

Weakness in the gold price yesterday was fueled in part by a relatively rare occurrence in recent months – an encouraging piece of U.S. economic data.  The ISM services index for August rose to 53.3, north of the 51.0 consensus estimate among economists.  The better than expected report helped calm fears – at least temporarily – that the U.S. economy is headed toward another recession.

Also making headlines was the announcement form the Swiss National Bank (SNB) that it will set a minimum exchange rate of 1.20 for the euro/ Swiss franc currency cross – following numerous months in which the euro fell to several new record lows against the franc.  Gold prices initially rallied on the news, but later sold off as investors viewed the news as an opportunity to take profits on safe haven asset classes such as the franc and yellow metal.

However, over the longer-term the impact of the SNB’s decision on the gold price is likely to be favorable.  Investors may direct funds previously bound for the franc toward gold, given the debasement inherent in fiat currency interventions.

Analysts at HSBC thought as much, where in a note to clients they wrote that “Central banks have shifted to exchange rate policy aiming to have the weakest currency in town. This is a game that everyone can’t win… but that doesn’t mean they won’t keep trying…One currency that will benefit most from this is the one that will not complain, gold.”

Long-time gold bull and Dow Theory Letters author Richard Russell offered a similar comment recently.  “The Russell opinion is that we’re seeing the slow but inevitable end of fiat irredeemable money,” he wrote. “Gold will be the last man standing.  Even the central banks have reversed their gold-having stand and are now buying gold”.

Russell went on to assert that “Gold is the true money that no central bank can print.  No wonder sophisticated investors accumulate it…The prescription that central banks offer is to keep printing their garbage-money. The world is beginning to understand.”