Gold Price Surges on Speculation China Set to Ease

GOLD PRICE NEWS – The gold price surged Tuesday morning, rising $17.05 to $1,661 per ounce.  Gold prices climbed above the $1,650 level on speculation that Chinese policy makers were set to implement aggressive monetary accommodation following a weaker than expected gross domestic product figure.  GDP in China grew 8.9% in the fourth quarter, the slowest pace in over two years.  Investors and traders pushed up the prices of not only gold, but stocks and commodities as well following the news.  S&P 500 stock futures climbed 9.30 to 1298.20 while oil and copper prices advanced 1.9% and 3%, respectively.

The U.S. dollar fell against the euro as the “risk-on” traded flowed through global markets.  Gold has been held back by strength in the U.S. dollar over the past two months.  However, as noted by Martin Murenbeeld, chief economist at Dundee Securities, in a research piece sent to clients this weekend, “The European crisis is inherently very positive for gold, and we have pointed to the ECB balance sheet as proof that quantitative easing has been aggressive in recent weeks.”  Murenbeeld went on to state, “This short-term positive relationship between the euro and gold (i.e., euro down, gold down) does not stand up as well over the medium and long-term as might be imagined.”

Silver inched higher alongside the gold price, rising $0.41 to $30.41 per ounce.  Gold’s sister precious metal has appreciated 9.2% thus far in 2012.  The iShares Silver Trust (SLV), a proxy for the silver price and the silver sector’s largest ETF, rose $0.73 to $29.55 per share.

While most gold and silver stocks moved higher Tuesday morning on the back of stronger gold prices, there were notable exceptions.  Kinross Gold (KGC) traded lower by 7.9% at $11.65 following its preliminary 2011 operating results and outlook for 2012.  Production and costs for 2011 of 2.6 million gold-equivalent ounces at approximately $600 per ounce were within the previously provided guidance range.  However, the company announced a 6 to 9 month delay in the Tasiast feasibility study.  Macquarie Securities downgraded the shares of Kinross to Neutral, commenting “Given the already tight development timeline and the potential onerous cost to maintain it, we believe Tasiast production could be delayed from mid-2014 to late 2015.”

Also, moving to the downside was Canadian-based gold producer, Primero Mining (PPP), which announced lowered 2012 gold production guidance.  TD Securities noted, “2012 production guidance of 100,000 – 110,000 oz Aueq (gold-equivalent ounces) was well below our estimate of 159k oz Aueq (152koz using their gold silver price assumptions) largely reflecting lower budgeted grades.”

With regard to the Chinese GDP report, several analysts contended that slower economic growth is likely to continue in the months ahead.    Economists at Citigroup wrote in a note to clients that “We expect GDP growth to slow more markedly in the first quarter due to the sharp investment slowdown under way.”  At J.P.Morgan, economists predicted that GDP growth will slow to 7.6% in the first quarter of 2012 on a year-over-year basis.  If these forecasts materialize, gold prices are likely to benefit from the policy response of China’s central bank.