Gold Price Firm, QE3, Euro Meeting in Spotlight

GOLD PRICE NEWS – The gold price rose $6.08 to $1,711.26 per ounce Wednesday ahead of yet another euro zone meeting on the region’s sovereign debt crisis.  The price of gold climbed to as high as $1,721.40 in overnight trading, but pared its gains amid a better than expected U.S. economic report.  U.S. durable goods orders fell just 0.8% in September, beating the -1.0% consensus estimate among economists.

On Tuesday the gold price spiked $48.87, or 3.0%, to a one-month high of $1,701.17 per ounce.  The price of gold initially hovered near $1,655 per ounce, but turned sharply higher following a much worse than expected reading on U.S. consumer confidence.  Silver followed the gold price higher, by $1.53, or 4.8%, to $33.28 per ounce.

The gold price surge boosted gold equities, as the AMEX Gold Bugs Index (HUI) turned a 2.1% intra-day loss into a 2.4% gain by yesterday’s close.  Favorable analyst commentary on several large-cap gold producers also provided a lift for the sector.  Macquarie upgraded both Agnico-Eagle Mines (AEM) and Eldorado Gold (EGO) to Neutral from Underperform, helping to send shares of AEM and EGO higher by 1.2% and 5.1%, respectively.  Newmont Mining (NEM) rose 1.6% after TD Securities initiated coverage with a Buy rating and $85.00 price target.

In contrast to the gold sector, the broader U.S. equity markets posted steep losses.  The S&P 500 Index tumbled 2.0% to 1,229.05 after the Conference Board reported that consumer confidence in October fell to 39.8.  The figure significantly missed the 46.0 consensus estimate among economists, and marked the lowest reading since March 2009.

The disappointing consumer confidence data ushered in the latest gold price rally amid rising speculation that the Federal Reserve may soon launch a third round of quantitative easing (QE3).  Market chatter over the likelihood of additional asset purchases increased noticeably following dovish commentary on Monday from New York Fed President William Dudley.  At a speech on the economic outlook, Dudley stated that the U.S. central bank is most certainly not “out of bullets.”  Dudley also noted that “It’s possible that we could do another round of quantitative easing,” but did not specify a timeframe for QE3.

Commenting on yesterday’s gold price action, TD Securities analyst Bart Melek wrote in a note to clients that “Gold jumped more than $39/oz to about $1,693/oz in recent trading, as US long bond yields dropped sharply due to Fed buying. The 10-year treasury yield fell some 7.9bps to 2.155%, bringing the opportunity cost of holding gold down materially. Given the possibility that the Fed will take additional quantitative easing (QE) action to help the economy, it is likely that gold will continue to get bid higher into the New Year.”

Melek went on to say that “The Federal Reserve has started buying long-dated Treasury bonds as part of its $400bn program (Operation Twist) to replace short-term debt with longer-term governments bonds in an effort to reduce borrowing costs. This, along with speculation that the US central bank could help US growth by potentially introducing another round of quantitative easing, which would likely include the purchase of mortgage securities, has sent bond yields sharply lower today. Aside from the lower real yield, concerns that new QE action may lift long-term inflation and work against the US dollar should fuel investor gold purchases.”

Looking ahead to the rest of the week, there are several more U.S. economic reports on tap likely to serve as catalysts for the gold price.  A report on new home sales is scheduled for later this morning, followed by weekly jobless claims, third quarter GDP, and pending home sales on Thursday.  The week then wraps up with reports on Personal Income and University of Michigan Consumer Sentiment on Friday.