Gold Prices Rebound Sharply After Drubbing

GOLD PRICE NEWS – The gold price moved sharply higher Tuesday, gaining $31.00 to $1,658 per ounce.  After sliding 6.5% over the past two trading sessions, the price of gold moved higher on bargain hunting among investors and traders.  Silver spiked higher by a huge $1.82, or 5.9%, to $32.56 per ounce.  On a closing basis, gold’s sister precious metal declined 24.4% over the last six trading days.  Optimism that European leaders are beginning get serious about stemming the waning confidence in the continent’s banking system helped buoy global stock and commodity markets.

On Monday, the gold price declined $29.92 to $1,629.33 after the CME announced yet another margin requirement increase on COMEX gold futures.   Initial requirements for gold’s benchmark contract increased 21% to $11,475 from $9,450 per contract, while maintenance margins rose to $8,500 from $7,000 per contract.  The spot price of gold tumbled to as low as $1,531.90 per ounce early Monday morning, but recouped a considerable portion of its losses amid dip buying and short covering.  With yesterday’s sell-off, the correction in the gold price reached 15.2% off the $1,922.20 all-time record high reached just three weeks ago.

Although the gold price initially plunged amid further liquidation in precious metals, it rebounded yesterday afternoon alongside other dollar-denominated asset classes.  The broad-based rally in commodities and stocks was fueled by reports that euro zone officials were considering implementing additional measures to combat the sovereign debt crisis.  Although no specific plans were announced, European Central Bank (ECB) executive board member Lorenzo Bini Smaghi stated at a conference on Monday that assets from the €440 billion European Financial Stability Fund (EFSF) could be used as collateral to borrow from the ECB.  Such borrowings could then be used for additional bailout funds and/or to help recapitalize troubled European banks.

Gold equities turned higher alongside the broader equity markets yesterday afternoon as the AMEX Gold Bugs Index (HUI) climbed 2.0% to 547.30.  Two of the gold sector’s top performers were Yamana Gold (AUY) and Newmont Mining (NEM), which advanced 3.25 and 2.4%, respectively.  The Dow Jones Industrial Average (DJIA) soared 272.83 points, or 2.5%, to 11,043.86.  Cyclical commodities posted gains as well – with silver rising by 2.4% to $30.83 per ounce, oil by 1.9% to $81.38 per barrel, and copper by 2.2% to $3.35 per pound.

Marc Faber, publisher of The Gloom Boom & Doom Report, provided his latest thoughts on the gold price in an interview with CNBC on Monday.  Faber, who has been correctly bullish on gold for most of the past decade, noted that the price of gold has become “very oversold” in the near-term.  “We overshot on the upside when we went over $1,900,” he asserted, and “We’re now close to bottoming at $1,500.”

Faber subsequently cautioned that if the $1,500 level does not hold, the gold price could fall to between $1,100 and $1,200 per ounce before finding a bottom.  However, despite the potential for a more severe gold price correction, Faber contended that “I don’t think the long-term trend is broken.”  Although he did not provide a specific gold price target at this time, Faber predicted earlier this year that the price of gold is likely to eventually surpass its inflation-adjusted all-time high of approximately $2,300 per ounce.

David Rosenberg of Gluskin Sheff – another long-time gold bull – also reiterated his positive long-term outlook on the gold price yesterday.  In a note to clients, Rosenberg wrote that “The fundamentals for gold, in terms of being a hedge against the growing lack of integrity in the global monetary system have not changed one iota despite the severe falloff in recent weeks.”