Gold Price Bounces as ECB Intervenes

GOLD PRICE NEWS – The gold price rebounded Friday, advancing $5.20 to $1,727 per ounce.  The price of gold stabilized following yesterday’s $44.53, or 2.5%, decline amid heightened European sovereign debt concerns and fresh worries over the prospect of a recession across the Atlantic.  S&P 500 stock futures rose 8.40, crude oil climbed 1% to $99.79 per barrel, and the cyclically-sensitive copper price gained 1.2% to $3.45 per pound.  Stocks, commodities, and gold received a boost from the news that the European Central Bank was actively purchasing Italian and Spanish bonds.

The gold price posted its worst day since September 23 yesterday and is now near unchanged on a month-to-date basis.  Silver fared considerably worse than the gold price, tumbling 6.2% to $31.61 per ounce on Thursday.  Shares of gold and silver companies are set to open higher this morning after yesterday’s pervasive weakness that led to the Philadelphia Gold & Silver Index (XAU) 3.6% decline.  Among gold producers, Eldorado Gold (EGO) plunged 7.3% to $17.46 and IAMGOLD (IAG) declined 5.8% to $19.67 per share.  Coeur d’Alene Mines (CDE) and Hecla Mining (HL), two of the sector’s larger silver companies, fell 3.7% and 5.5%, respectively.

The gold price turned initially lower on Thursday after two better than expected U.S. economic reports.   Weekly jobless claims came in at 388,000, below the 400,000 consensus estimate among economists.  Housing starts in October jumped to 628,000, beating the 575,000 figure economists were expecting.  As trading progressed, the price of gold added to its losses as broad-based selling engulfed the precious metals space.

While the two reports came in ahead of expectations, New York Federal Reserve President William Dudley suggested in a speech on Thursday that the U.S. remains faced with several economic challenges.  “Although the latest news on the U.S. economy is somewhat more encouraging than that from earlier in the year, we should not take much solace from that,” he stated.  “The U.S. economy continues to face several obstacles…We also continue to face significant downside risks, mostly related to the stress in the euro zone.”

In Europe, yields on Italian and Spanish debt moved lower as the European Central Bank intervened to purchase the debt of these fiscally-strapped nations.  How aggressive the ECB will be is the subject of much debate.  What is clear is that yields must come down or countries such as Italy will face rapidly escalating debt to GDP ratios.

The crisis in Europe has caused investors to “move out of risky assets,” according to Marcus Grubb, managing director of investment research at the World Gold Council (WGC).  “They move out of equities, they move into short-dated bonds and into cash,” Grubb added, “and they even move out of gold because they tend to take profit in it to shore up losses in the rest of their portfolio.”

Despite Grubb’s cautious near-term stance on the gold price, the World Gold Council presented a bullish outlook on the yellow metal in its Gold Demand Trends report for the third quarter of 2011.  “Increasing levels of inflation, the US credit rating downgrade, a worsening eurozone sovereign debt crisis and the lackluster performance of many assets drove investors to increase holdings in gold (during the quarter) in order to protect their wealth,” the report noted.

“Given gold’s proven risk mitigation properties, it is likely that investors will continue to seek protection from economic uncertainty, which shows no signs of abating,” the WGC contended.  “The long-term fundamentals for gold remain strong, with a diverse and growing demand base coupled with constrained supply-side activity.”