GOLD PRICE NEWS – The gold price climbed higher Monday, advancing $21.25 to $1,776 per ounce. The price of gold moved to a six week high as Italian 10-year bond yields spiked through 6.5%. Greek Prime Minister George Papandreou agreed to step down yesterday, paving the way for a national unity government. Stock markets came under pressure Monday as Italian Prime Minister Berlusconi came under pressure to resign amid a growing lack of confidence in his nation’s ability to service its debt load at current interest rates. S&P 500 futures fell 7.80 to 1243.30.
Last week, the gold price rose 0.8% as a number of central banks across the globe reaffirmed their commitment to fresh monetary accommodation. In contrast to the gold price, silver posted a weekly loss of 3.2% as the broader commodities complex suffered from a renewed bout of risk aversion. Silver followed gold higher this morning, rising 1.2% to $34.57 per ounce.
Gold shares were bolstered by the rising price of gold as the AMEX Gold Bugs Index (HUI) climbed 1.4% last week. Yamana Gold (AUY) was one of the week’s top performers with a 4.6% gain. The Canadian-based gold miner reported a “solid third quarter” of earnings on Thursday, according to TD Securities. Another notable advancer was Agnico-Eagle Mines (AEM), which rallied 3.9%. AEM was upgraded last Thursday by Dahlman Rose to Buy from Hold based on an “attractive valuation” following several weeks of significant weakness.
The gold price received a boost from measures taken last week by three of the world’s largest central banks – the Federal Reserve, European Central Bank (ECB), and the Bank of Japan (BOJ). The Bank of Japan intervened in the currency markets to help suppress the value of the yen, which had risen to another new all-time high against the U.S. dollar. The ECB unexpectedly dropped its benchmark interest rate by 25 basis points to 1.25%, citing a weakening economic outlook for the euro zone.
As for the Federal Reserve, the tone of last week’s Federal Open Market Committee (FOMC) statement was notably more dovish than from previous meetings. Instead of three dissenting hawkish votes – as had been the case in the prior two statements – the latest one contained a dovish dissenting vote. Chicago Fed President Charles Evans felt that more accommodative monetary policies were necessary to support the U.S. economy. Although the Fed did not launch any additional easy monetary measures, many economists contended that the Bernanke-led central bank is laying the groundwork for a third round of quantitative easing (QE3) in the months ahead.
In light of these developments, long-time gold investor John Hathaway asserted in an interview with King World News that the outlook for the gold price remains particularly bright. “People got shaken out when gold went below $1,600. The price of gold has come right back up and it’s left all of those investors as sold out bulls, so it’s great action…The ones that were enthusiastic when gold was $1,900 are nowhere to be seen now. A lot of that money is now on the sidelines and I think it’s fantastic.”
Hathaway, portfolio manager of the Tocqueville Gold Fund, went on to say that “We saw Europe cut interest rates…That probably won’t be enough, they will have to do that some more. Europe is slowing down and that’s kind of scary. It just seems to me that you have the ingredients for a new high in gold.”
“Bernanke has itchy trigger fingers on the next quantitative easing,” Hathaway added. “He didn’t want to say it in so many words, but most of the commentary seems to anticipate another round of quantitative easing. So things look great for gold.”
As for gold equities, Hathaway noted that “These companies are making a huge amount of money and the stocks are going up and the analysts are saying, ‘Big deal.’ Like I said, there is no enthusiasm and I think that’s great.”
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