Gold Price Surges 2%, Silver Spikes

GOLD PRICE NEWS – The gold price surged Monday morning, rising $37.50 to $1,718 per ounce.  Rumors that the International Monetary Fund (IMF) was preparing a €600 billion ($801 billion) rescue package for Italy, combined with strong retail sales in the U.S. over the weekend, helped fuel a potent rally in the stocks, commodities, and the price of gold.  S&P 500 stock futures, which gained 33.20 to 1186.60, have fallen for seven consecutive trading sessions heading into the day.  WTI crude oil rose 2.9% to $99.58 per barrel while copper advanced 2.7% to $3.37 per pound.

Last week, the spot gold price declined $43.15, or 2.5%, to $1,680.75 per ounce amid widespread weakness in financial markets.  Escalating sovereign debt concerns in Europe combined with a disappointing reading on U.S. GDP to send commodities and stocks lower across the board.  The price of gold was further pressured by strength in the U.S. dollar, which continued to advance against the euro and many of the world’s other fiat currencies.  The SPDR Gold Trust (GLD), a proxy for the gold price and the largest gold ETF, slid 2.5% to $163.40 per share.

Silver, which retreated in concert with gold prices last week by 3.7%, climbed 3.4% to $32.14 per ounce.  Precious metals equities were poised to move higher Monday morning after a tumultuous past week. The Philadelphia Gold & Silver Index finished last week down 4.3% at 187.58 – its lowest level in over a month.  Barrick Gold (ABX), the world’s largest gold mining company, fared better than its peers, however, as it dipped 2.5% to $47.59 per share.  Newmont Mining (NEM), the largest U.S.-based producer and the only gold stock included in the S&P 500 Index, also outperformed the sector as it dropped 2.6% to $63.77 per share.  ABX and NEM climbed 3.3% and 1.9%, respectively, early Monday

All 30 stocks in the Dow Jones Industrial Average (DJIA) were set to open higher after last week’s steep 4.8% decline in the widely followed index.  Weakness in stocks coincided with a modest climb in risk aversion, as the CBOE Volatility Index (VIX) rose 7.7% last week to 34.47.  U.S. treasuries remained one of the few spots of refuge, as the yield on the ten-year note slid from 2.01% to 1.97%.

Despite the recent gold price correction, the yellow metal has continued to outperform nearly all equity markets and commodities in 2011.  The spot price of gold remains higher by $259.70, or 20.3%, on a year-to-date basis and is on pace for its 11th consecutive annual advance.  Silver is up 3.7% this year, while the S&P 500 Index is now lower by 7.9%.

Commenting on the outlook for gold prices, Barclays Capital precious metal analyst Suki Cooper predicted in a recent Bloomberg interview that the gold price will average $1,875 per ounce in the fourth quarter of 2011 and $2,000 in 2012.  However, she also stated that “In the near term prices look a little soft on the downside, but we still remain positive longer-term.”

Cooper attributed her bullish forecast to ongoing worries about the state of the global economy, which will continue to “support investor interest” in the yellow metal.  She noted that physical demand for gold has been on the rise of late, and that “gold ETF flows picked up in October and this has continued into November.”

Looking ahead to the coming week, sovereign debt turmoil in Europe is likely to be a key driver for the gold price.  German Chancellor Angela Merkel and French President Nicolas Sarkozy are scheduled to meet on December 9, at a summit to discuss potential changes to the European Union treaty.  These changes could allow for a more robust set of measures to assist the European banking system and several of the PIIGS countries.

In the U.S., the economic calendar this week is particularly heavy with data that is likely to impact the price of gold.  New home sales for October are due out on Monday, along with by the Case-Shiller report on home prices and Consumer Confidence reports on Tuesday.  ADP employment data will be released Wednesday morning, followed by the Fed’s Beige Book in the afternoon.  Weekly jobless claims are scheduled for Thursday, as well as the ISM Index, a key gauge of manufacturing activity.  The most critical economic data point for the markets, however, will occur on Friday with the November non-farm payrolls report.  If the data misses economists’ estimates, gold prices are likely to remain well supported, while a better than expected report could provide a headwind for the yellow metal.