Gold Price Climbs after BOE, ECB Meetings

GOLD PRICE NEWS – The gold price advanced $11.33, or 0.7%, to $1,745.37 per ounce Thursday morning after central banks in England and the euro zone reiterated their dovish stances on monetary policy.  The price of gold held steady near $1,735 in overnight trading, but turned sharply higher after the Bank of England (BOE) announced £50 billion of additional quantitative easing.  The European Central Bank (ECB) kept its benchmark interest rate at a record low of 1% and ECB President Mario Draghi warned of “high uncertainty and downside risks” at his monthly press conference.

On Wednesday the gold price slipped $11.51, or 0.7%, to $1,734.04 per ounce as the yellow metal gave back a portion of Tuesday’s large rally.  In mid-day trading the price of gold tumbled to $1,722.80 amid liquidation in precious metals, but subsequently pared its losses.  The SPDR Gold Trust (GLD), the world’s most liquid gold price proxy, fell $1.20 to $168.50 per share.

Silver prices initially dropped alongside the yellow metal, but finished back near unchanged by the end of the day.  Gold’s sister precious metal hit a low of $33.58 per ounce but reclaimed the $34.00 level in afternoon trading.  Additionally, silver has continued to outperform the gold price, as it remains higher by 1.0% this week and 22.7% in 2012.

Yesterday’s gold price sell-off put pressure on gold stocks, which finished modestly lower.  The Market Vectors Gold Miners ETF (GDX), a basket of the world’s largest gold companies, finished down by $0.34, or 0.6%, at $55.54 per share.  In doing so, the GDX extended its weekly loss to 1.6% and cut its year-to-date gain to 8.0%.  Among the large-cap producers, notable decliners included Barrick Gold (ABX), Goldcorp (GG), and IAMGOLD (IAG).  ABX finished lower by 0.4% at $49.07, GG by 1.3% at $47.16, and IAG by 1.4% at $16.75 per share.

Despite yesterday’s gold price sell-off, the yellow metal remains higher by 0.5% this week and by 10.9% on a year-to-date basis.  Gold prices have been propelled higher by central banks’ renewed commitments to accommodative monetary policies – evidenced most recently by the Federal Reserve.  On Wednesday, San Francisco Fed President John Williams was the latest central banker to provide his outlook on U.S. monetary policy.

At a speech in California, Williams alluded to the possibility of further monetary easing.  “The policy actions the Fed takes from here will depend on how economic conditions develop, and they will change as economic circumstances change…We may still need to provide more policy accommodation if the economy loses momentum or inflation remains well below 2%.”

“In this situation, it’s vital that the Fed use all the tools at its disposal to achieve its mandated employment and price stability goals,” Williams added.  “Should that occur, restarting our program of purchasing mortgage-backed securities would likely be the best way to provide a boost to the economy.”

Williams also urged his audience to not get “carried away” over last week’s better than expected employment report.  “250,000 jobs good, but…to see significant changes, we need to add 300,000 or 400,000 jobs per month.”  This comment echoed remarks earlier this week from Fed Chairman Ben Bernanke, who said that the unexpected decline in the unemployment rate to 8.3% “no doubt understates the weakness of the labor market in some broad sense.”

These comments suggest that the Fed continues to view deflation as a significantly greater risk than that of inflation.  Furthermore, if the deflationary risks escalate in the months ahead, the Fed has now laid out a playbook that would undoubtedly involve further money printing.  As a result, the gold price is likely to remain a prime beneficiary of these policies going forward.