Gold Price Holds Firm at $1,830

GOLD PRICE NEWS – The gold price oscillated near $1,830 per ounce Thursday, trading near unchanged on the day.  After sliding off its $1,913 all-time high posted on Aug 22, the price of gold has been held in check under $1,850 as investors and traders weigh whether a deeper correction is in the offing.

Economic figures continue to be scrutinized for clues as to whether the recent deterioration in data is merely a pause in a recovery, or a double-dip recession is forthcoming.  Tomorrow’s unemployment report from the Labor Department will offer information as to whether the jobs market continues to stagnate.  The lack of job creation has helped keep central bankers in the dovish camp with respect to monetary policy – a fact that has helped boost the gold price.

On Wednesday, the spot gold price fell $10.11 to $1,825.51 after trading in a wide range between $1,815 and $1,840 yesterday.  The SPDR Gold Trust (GLD), the world’s largest gold ETF and a proxy for the gold price, slid $1.38 to $177.72 per share.

Silver deviated from the gold price yesterday, rising 0.6% to $41.57 per ounce amid widespread gains in industrial commodities.  Gold and silver shares finished mostly lower, with the Philadelphia Gold & Silver Index (XAU) dipping 0.3% to 217.96.  Among gold producers, Goldcorp (GG) and Kinross Gold (KGC) retreated 0.8% and 1.2%, respectively.  As for silver mining companies, Pan American Silver (PAAS) fell 0.2% and Silver Standard Resources (SSRI) slid 0.4%.  Gold mining stocks traded near unchanged Thursday morning.

The weakness in the price of gold was driven by two better than expected pieces of economic data.  The Chicago Purchasing Managers Index for August came in at 56.5, above the 53.1 consensus estimate among economists.  U.S. factory orders rose 2.4% in July, beating the 1.9% rise the market was expecting.  However, the positive data was tempered by the worse than expected ADP employment report – which at 91,000 came in below economists’ estimates of 100,000.

Despite the yellow metal’s dip, the spot price of gold posted a 13.0% gain in August.  This marked the best month for gold since 2001 when the current bull market was in its infancy.  COMEX gold futures climbed 12.3% in August, surpassed only by a 12.8% surge in November 2009.

Looking ahead to September – which is historically the best month for gold prices – the upcoming Federal Open Market Committee (FOMC) meeting is likely to serve as the key catalyst for the yellow metal.  Michael Churchill, head of Churchill Research, wrote in a note to clients that he expects the Fed to expand its easy monetary policies at the September meeting.

“The August Fed minutes were much more dovish than I would have expected,” Churchill noted.  “From the eyes of the FOMC participants, the economy is weak, inflation is firmly under control (and likely to start trending down again soon), the labor market is slack and business confidence is depressed. The FOMC’s statement that it plans an extra day at its September meeting to discuss further easing measures signals quite clearly that the Fed is likely to do undertake some form of additional easing, though probably not under the headline of QE3.”

Although Churchill did not predict QE3, he expects gold prices to remain firmly underpinned.  “With the funds rate likely to be pinned at 0.25% for the foreseeable future, and with additional easing measures also in the works, the path of least resistance for gold (and by extension silver) remains upward.”

Churchill’s forecasts for a stronger gold price and a more dovish Fed were reinforced yesterday by Atlanta Fed President Dennis Lockhart.  In a speech to the Greater Lafayette Chamber of Commerce, Lockhart hinted at the possibility of further Fed easing.  “Given the weak data we’ve seen recently and considering the rising concern about chronic slow growth or worse, I don’t think any policy option can be ruled out at the moment,” he contended.  “We may find, as economic circumstances evolve, that policy adjustments are required.  In more adverse scenarios, further policy accommodation might be called for.”

Lockhart’s statements echoed commentary earlier this week from Chicago Fed President Charles Evans, who appeared even more dovish than his Atlanta-based colleague.  Evans noted in a CNBC interview that he “would favor more accommodation” due to the recent economic downturn.

In light of this growing chorus of doves at the Federal Reserve, September promises to be another interesting month for the gold price and gold-related investments.