Gold Price Stabilizes Despite “Shaky Environment”

GOLD PRICE NEWS – The gold price stabilized near $1,640 per ounce Thursday morning after weekly jobless claims in the U.S. came in roughly in-line with expectations at 401,000.  The spot price of gold climbed to as high as $1,656.10 earlier this morning, but pared its gains heading into the open of U.S. equity markets.  In contrast to the gold price, silver climbed $0.27, or 0.9%, to $30.76 per ounce.

On Wednesday the gold price advanced $14.98, or 0.9%, to $1,638.92 per ounce as weakness in the U.S. dollar propelled commodities higher.  The spot price of gold fell to as low as $1,596.90 yesterday morning but rebounded to as high as $1,648 in afternoon trading.  The SPDR Gold Trust (GLD), the world’s most liquid gold price proxy, settled with a gain of $1.82, or 1.2%, at $159.46 per share.

Silver posted a more modest gain than the gold price yesterday, as it rose $0.16, or 0.5%, to $30.38 per ounce.  Gold and silver equities surged higher, with many significantly outperforming precious metals.  Barrick Gold (ABX) and Goldcorp (GG), the world’s two largest gold mining companies, jumped 3.7% and 4.8%, respectively.  Among silver producers, Coeur d’Alene Mines and Hecla Mining (HL) surged 5.1% and 5.0%, respectively.

Although the gold price bounced back from Tuesday’s 2.1% sell-off, it remained near the middle of its recent $1,600-$1,670 trading range.  Michael Lewis, an analyst with Deutsche Bank, contended that the price of gold is likely to remain in this range for the next couple of months.  “My sense is that gold is a bit like silver after its collapse (in May 2011) from almost $50 to around $35,” Lewis noted. “It was incredibly erratic but with quite a stable performance over about six to eight weeks.”

Lewis went on to say that “I don’t think there is going to be much clear direction for gold at the moment.  To some extent the market is just a bit broken, and needs to repair itself… the strength that we saw (earlier this year) is going be difficult to repeat.”

Analysts at UBS echoed this sentiment in a note to clients.  “Separating itself from negative influences is by no means a straightforward endeavour for gold and volatile price action is clearly going to persist,” the firm wrote.  “Yesterday’s moves highlight the difficulty of making sense of the gold market in the current shaky environment.”

Earlier this week, UBS lowered its 1-month and 3-month gold price targets by 9.0% and 7.1%, respectively, to $1,775 and $1,950 per ounce.   “Our core bullish view on gold remains unchanged and the light nature of [speculative] positioning is a big positive, but our previous one-and three-month [prices]…are overly ambitious given the recent slowdown in market momentum,” the firm argued.

Looking ahead to the remainder of the week, Friday’s U.S. non-farm payrolls report is likely to serve as a key catalyst for both the gold price and broader financial markets.  The consensus estimate among economists is for a 50,000 employment gain, while the unemployment rate is expected to remain at 9.1%.

With the August jobs report showing a disappointing figure of zero jobs added, another worse than expected reading could raise the pressure on the Federal Reserve to further expand its suite of easy monetary policies.  The gold price would be a clear beneficiary in such a scenario.  Alternatively, a better than expected non-farm payrolls report would likely reduce the odds of additional accommodative policies and thus present a headwind for the price of gold.