Gold Price Steady, U.S. Inflation Remains Tepid

GOLD PRICE NEWS – The gold price held firm near $1,735 per ounce Friday morning after the U.S. Consumer Price Index provided the Federal Reserve with additional evidence to support its slew of accommodative monetary policies.  The spot price of gold maintained a slight gain after the January CPI reading of 0.2% came in below the 0.3% consensus estimate among economists.  In Europe, equity markets posted strong gains across the board on Friday, while U.S. markets looked to open fractionally higher.

On Thursday the gold price recovered from earlier losses to close only fractionally lower at $1,728.39 per ounce.  The spot price of gold fell to as low as $1,704.30 in morning trading but bounced back alongside commodities and stocks.  The rebound in the gold price was fueled by a move lower in the U.S. dollar, which surrendered its gains amid reports of progress in Europe on the Greek bailout.

Silver initially tumbled to $32.56, but climbed back into positive territory at $33.58 per ounce.  Other precious metals recouped their losses as well, with platinum jumping from $1,599.00 to $1,625 per ounce and palladium from $674.00 to $697.00 per ounce.  As for cyclically-sensitive commodities, copper futures advanced from $3.73 to $3.81 per pound and crude oil from $101.18 to $102.60 per barrel.

Gold shares delivered a far more impressive performance than the gold price, however, on Thursday.  The Market Vectors Gold Miners ETF (GDX) turned a 1.6% decline at $52.69 into a 2.6% gain at $54.95 per share by the end of the day.  Notable gold producers posting gains included Goldcorp (GG), Kinross Gold (KGC), and Yamana Gold (AUY).  GG finished higher by 4.8% at $47.42, KGC by 7.8% at $11.10, and AUY by 2.7% at $16.64 per share.

The broader equity markets surged higher alongside the gold sector, as the Dow Jones Industrial Average reversed its earlier losses to finish with a gain of 1.0% at 12,904.08.  In doing so, the benchmark U.S. equity index reached its highest closing level since May 19, 2008.  Risk aversion continued to subside as well, with the CBOE Volatility Index dropping 9.1% to 19.22.

The markets and gold price rebounded after German newspaper Die Welt reported that the European Central Bank (ECB) plans to engage in a Greek debt swap in order to more effectively alleviate the nation’s financial condition.  The euro currency extended its gains against the U.S. dollar following the report, rising from an intra-day low of 1.2976 to 1.2135.

Under the terms of the proposed swap, the ECB would exchange the Greek bonds it presently owns for newly issued ones with a longer maturity, so as to give Greece further time to attempt to rectify its fiscal challenges.   Euro zone officials are expecting the plan to reduce the likelihood of a deflationary debt spiral, which in turn would raise the prospects for higher asset prices.

The gold price also received support on Thursday from the World Gold Council (WGC), which published its 2011 Gold Demand Trends report.  The WGC announced that global demand for gold surpassed $200 billion last year for the first time ever.  “The main driver for this increase was the investment sector where annual demand was 1,640.7t up 5% on the previous record set in 2010 and with a value of US$82.9 billion,” the report noted.  “The pre-eminent markets for investment demand in 2011 were India, China and Europe.”

Marcus Grubb, Managing Director, Investment at the WGC commented that “What we can see from these 2011 figures is that there were two main factors driving the results: Asian growth and optimism on the one hand and western desire to protect assets against uncertainty on the other…What is certain is that the long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply side activity.”