Gold Price Opens February with More Gains

GOLD PRICE NEWS – The gold price advanced Wednesday, gaining $7.80 to $1,747 per ounce.  The price of gold capped off the month of January by rising $10.15.  Weaker than expected economic data helped to boost the price of gold, which posted an impressive 11.1% rise in the first month of 2012.  In doing so, the gold price posted its best month since August of last year and recaptured almost its entire 10.4% decline in December.

Despite the recent rise in gold prices, many investors and analysts remain cautious on the outlook for the yellow metal.  Scotta Mocatta’s Simon Weeks, who has repeatedly questioned the sustainability of the recent rally, noted, “if gold breaches the mid $1760s in a convincing manner and continues as it has been on the crosses then I will have to throw the towel in but for the time being I remain suspicious as to how genuine the current level of demand is.”

While the gold price delivered a particularly impressive month, silver fared even better.  Gold’s sister precious metal surged $5.46, or 19.7%, to $33.18 per ounce in January – marking its best month since April 2011.  In addition, silver snapped a two-month losing skid and more than recouped its 15.6% slide in December.  Silver advanced nearly 2% Wednesday morning to $33.83 per ounce.

Gold shares settled near unchanged on Tuesday as modest weakness in the broader equity markets offset the gold price rally.  The Market Vectors Gold Miners ETF (GDX) traded in a wide range between $55.75 and $57.71 per share, but finished unchanged at $56.46.  For the month, however, the GDX jumped $5.03, or 9.8%.  Barrick Gold (ABX), the sector’s largest mining company, advanced 8.9% this month.  Newmont Mining (NEM), the largest U.S.-based gold producer, was a notable laggard as it rose just 2.4%.  Among large-cap gold stocks, Yamana Gold (AUY) was one of the top performers, with a 17.8% gain.

The most significant catalyst in January for the gold price was the Fed statement at last week’s Federal Open Market Committee (FOMC) meeting.  In it, the Ben Bernanke-led U.S. central bank extended its zero interest rate pledge from mid-2013 to late-2014.  In addition, the FOMC statement included new dovish language, which stated that the Federal Reserve intends to maintain a “highly accommodative” monetary policy stance for the foreseeable future.

Bernanke and his fellow central bankers based a substantial amount of their dovish stance on the myriad of headwinds continuing to plague the U.S. economy.  The labor and housing markets have shown few signs of rebounding, and the fourth quarter 2011 GDP report came in considerably below economists’ estimates.

The S&P/Case-Shiller home price index showed a 3.7% decline in November on a year-over-year basis.  In its report, S&P noted that “The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.”  The Chicago Purchasing Managers Index (PMI), a key measure of manufacturing activity, dropped to 60.2 in January, missing the 61.5 consensus estimate among economists.  Lastly, Consumer Confidence came in at a 61.1, well below the 68.0 expected reading.

This latest batch of data will serve to reinforce the Fed’s view that a significant amount of monetary accommodation is needed to support the economy.  The implications of the reports for the gold price are clear – so long as the economy remains at risk of a recession, easy monetary policies are likely to provide a favorable backdrop for the yellow metal.