Gold Price Retreats, Not “Technically Healthy?”

GOLD PRICE NEWS – The gold price retreated $19.48 to $1,621.18 per ounce Thursday as weakness in precious metals continued this morning.  The spot price of gold fell to as low as $1,606.90 in overnight trading, but pared its losses as the U.S. dollar turned lower against a basket of foreign currencies.  Silver prices fell as well, by $0.56, or 1.8%, to $30.69 per ounce.

The gold price showed a muted reaction to the weekly U.S. jobless claims report, which at 403,000 met the median estimate among economists.  Equity markets in Europe were lower across the board, but U.S. exchanges nevertheless looked to open modestly higher – with S&P futures up 5.75 points at 1,212.25.

On Wednesday the gold price dropped $17.18 to $1,640.67 per ounce amid a renewed batch of weakness in the broader financial markets.  The 1.1% slide in the price of gold was fueled by a rebound in the U.S. dollar as investors pared positions in the commodities complex.  The gold price only inched lower in morning trading, but extended its losses following the release of the Federal Reserve’s latest Beige Book.  In addition, reports that Germany and France remain at odds over how to expand the European Financial Stability Fund (EFSF) helped weigh on the gold market.

Silver posted a considerably larger loss than the gold price, as it retreated $1.02, or 3.2%, to $31.03 per ounce.  With its decline, the price of silver cut its year-to-date gain to a paltry 0.3%.  Cyclical commodities tumbled as well, with copper off 3.9% at $3.23 per pound and crude oil sliding 2.6% to $86.05 per barrel.

As for gold shares, a combination of weakness in the gold price and the broader equity markets put substantial pressure on the sector.  The AMEX Gold Bugs Index (HUI), a composite of the world’s largest gold producers, sunk 5.8% to 513.18.  The benchmark indices posted more moderate losses – with the Dow Jones Industrial Average (DJIA) falling 0.6% to 11,504.62 and the S&P 500 Index sinking 1.3% to 1,209.88.

Notable gold stocks moving lower included Barrick Gold (ABX) and Kinross Gold (KGC), which dropped 4.9% and 7.1%, respectively.  However, those losses paled in comparison to Agnico-Eagle Mines (AEM), which plunged 18.6% to $46.51 per share after the Canadian-based gold producer announced the suspension of mining operations and gold production at its Goldex Mine in Quebec.  Agnico-Eagle reported that the suspension stemmed from a ground stability issue, and that it will write-off its entire investment in Goldex.

Wednesday’s release of the Fed’s Beige Book – a recap of economic activity across the United States – contained few surprises for investors.  The Bernanke-led Fed noted that economic growth continued to slow in recent months, with particular weakness in residential and commercial real estate, as well as in the labor market.  In light of the deteriorating economic climate, speculation has arisen that the Fed may further expand its suite of accommodative monetary policies at the next Fed meeting on November 1-2.

Despite the heightened volatility in financial markets in recent weeks, the gold price has largely traded between $1,600 and $1,700, and remains 15.7% below its $1,922.20 all-time high.  Commenting on the gold market, analysts at Commerzbank wrote in a note to clients that “The price of gold has not really profited from the growing uncertainty,” in recent weeks.  Instead, the yellow metal has headed lower alongside assets viewed as relatively risky and has traded inversely to the U.S. dollar.

Dennis Gartman, the long-time commodities investor and publisher of The Gartman Letter, offered a similar but more cautious perspective on the gold price.  “Given the severity of the break in mid-September, if the gold market was still technically healthy it should have bounced sharply back, regaining that which it had lost rather swiftly,” he wrote.  “Taking twice or three times as long to regain only a third or so of what had been lost seemed at least awkward and at worst bearish,” Gartman contended.