Gold Price Rebounds as Dollar Drops

GOLD PRICE NEWS – The gold price climbed $25.20 to $1,592 per ounce after trading as high as $1601 per ounce early Friday morning.  Bargain hunters stepped in to take advantage of the $176 correction in the price of gold that has occurred in the month of December.  Weakness in the U.S. dollar against the euro helped boost precious metals and the rest of the commodities complex.  Silver advanced nearly 2% to $29.74 per ounce while copper climbed 2.7% to $3.35 per pound.

On Thursday, the gold price settled lower for a fourth consecutive day, sinking 0.3% to $1,567.26 per ounce.  The spot price of gold initially climbed as high as $1,594.80, but relinquished its gains amid calls that the yellow’s technical picture has turned decidedly bearish.  With its decline, the gold price extended its weekly loss to 8.4% – its worst stretch since a 9.2% drop in November 2009.

Jeffrey Wright, an analyst with Global Hunter Securities, attributed this week’s gold price sell-off to a combination of investors raising cash due to European sovereign debt turmoil and thin trading volumes ahead of the holiday season.  “As we get closer to holidays there are less market participants and less on the retail side,” Wright wrote in a note to clients.  “When you have a sharp event and you don’t have the breadth of market liquidity it can make these moves sharper because there is no one to participate.”

Michael Platt, head of a $30 billion hedge fund, BlueCrest Capital Management LLP, provided his thoughts on the sovereign debt crisis in an interview yesterday with Bloomberg.  Platt contended that Italy’s financial situation is likely to worsen significantly over the next year and that “much more radical measures” are needed to prevent such a dire outcome from occurring.  “If Italy and Spain are forced to roll their debt over, if they have to pay rates between 5 and 7% for this, then the situation in Europe is unsustainable.  We’re not going to have any euro bonds, we’re not going to have a full political and fiscal union where the transfers can take place.  It seems what we’re going to have is an attempt to control the European situation through continued austerity, which is pro-cyclical.  As the economy slows down, we end up with more austerity which creates more slowdown.”

When asked to compare the 2008 financial crisis to the current situation in Europe, Platt responded that “What’s going on now is significantly worse than 2008…The European debt situation is fundamentally completely unstable.  The process of refinancing your debt with a real rate of 5 when you have negative GDP growth, and we are heading into a recession in Europe, arithmetically can turn all of the countries in Europe, given enough time, into Greece.”

While the price of gold moved lower on Thursday, silver snapped a three-day losing skid by rebounding modestly.  The spot price of silver advanced $0.14, or 0.5%, to $29.06 per ounce.  Gold’s sister precious metal had reached an intra-day high of $29.38, but pared its gains as the U.S. dollar bounced back against the euro currency.  The euro still managed to climb against the greenback, however, but by only 0.3% to 1.3020.

Weakness in the gold price continued to pressure shares of gold mining companies, as the AMEX Gold Bugs Index (HUI) slid 1.5% to 501.40.  In doing so, the HUI – comprised of the world’s largest gold producers – reached its lowest closing level since June 27th of this year.  Agnico-Eagle Mines (AEM) and Harmony Gold (HMY) were two of the sector worst performers yesterday, with declines of 4.8% and 4.9%, respectively.  Newmont Mining (NEM) was one of the only gold stocks to finish in positive territory, albeit by just 0.2% at $61.76 per share.  Gold mining stocks rose across the board early Friday on strength in the gold price and buoyant global equity prices.