Gold Price Sinks as Odds of Greek Default Rise

GOLD PRICE NEWS – The gold price declined Tuesday, sinking 0.8% to $1,665 per ounce.  Gold prices fell alongside the broader stock and commodity markets on worries that Greece might be headed for a disorderly default.  Negotiations between European policy makers and private bondholders have yet to result in an agreement.  Greece faces a €14.5 billion bond payment due on March 20.  S&P 500 stock futures dropped 7.80 to 1303.30 while oil and copper prices sank 0.8% and 1.1% to $98.91 per barrel and $3.76 per pound, respectively.

Gold prices advanced $11.14, or 0.6%, on Monday to a six-week high of $1,678.36 per ounce.  The gold price rally was driven by gains in the commodities complex and U.S. dollar weakness.  The greenback slipped 0.5% against a composite of foreign currencies, while the euro rose 1.1% to 1.3021 against the dollar.  The dollar recouped some of its losses early Tuesday.

The SPDR Gold Trust (GLD), the world’s largest gold ETF and gold price proxy finished higher by $1.09 at $163.16 per share, although relinquished most of its gains this morning.   Silver fell 1% to $32.03 per ounce after climbing 0.5% during yesterday’s session.  Despite today’s drop, gold’s sister precious metal has returned 14.0% thus far in 2012, making it one of the top performing asset classes.

Commenting on the strength in the gold price, Standard Chartered analyst Daniel Smith asserted that “Gold is part of a wider rally in commodities and risk appetite…Gold has done pretty well since hitting the lows back in late December. I felt it would rally because it just seemed oversold to me and obviously we have seen some kind of upturn from the physical side of things, which has helped … I think we will get to $1,700 and then maybe get a bit more consolidation.”

UBS offered a similar take on the price of gold, noting that “The slow grind higher in gold speculative positioning on Comex reflects the cautious optimism that appears to dominate market sentiment at the moment.  That investors have become friendlier to gold is clear, but as gold’s correlation with risk and the euro remains strongly positive – although easing somewhat – longs are likely to remain more tentative than aggressive given the still-uncertain macroeconomic environment.”

Gold shares were one of the few sectors in the equity markets to finish in the black yesterday.  The AMEX Gold Bugs Index (HUI), comprised of the world’s largest producers, rallied 1.5% to 508.89 while the S&P 500 Index held near unchanged at 1,316.00.  Barrick Gold (ABX.TSX, NYSE: ABX), the sector’s largest component, finished up $1.12, or 2.4%, at $46.95 per share.  Other notable advancers included Goldcorp (GG) and Harmony Gold (HMY), which rose 0.8% and 1.7%, respectively.  Gold mining stocks moved lower Tuesday on the back of lower gold prices and selling pressure in the broader equity market.

Barrick, the world’s largest gold producer, was in the news on Monday as after Macquarie analyst Tony Lesiak lowered his price target to C$70.00 from C$73.00 per share.  Commenting on Barrick’s recently released fourth quarter operating results, Lesiak wrote that “Despite the benefit of its currency and oil hedges, Barrick is participating in the industry trend of rising costs. However, we expect costs to stabilize in 2013 before falling in 2014.”

Despite Barrick’s price target reduction, Lesiak reiterated his Outperform rating on the stock.  “Barrick remains our top pick among the North American gold producers,” he contended, “trading at a discount to the group (0.55x vs 0.59x) on NAV and 29% discount on cash flow metrics.”