Gold Price Rebounds, Einhorn Advocates “Large Allocation” to Gold

GOLD PRICE NEWS – The gold price recovered from its overnight losses on Friday, rising from as low as $1,701.62 per ounce back toward unchanged at $1,715.15.  The rebound in the price of gold coincided with the broader financial markets, which also bounced back from earlier declines.  The U.S. Dollar Index also pared its gains this morning, which helped support gold prices.

Silver followed a similar trajectory to the price of gold, as it climbed from an overnight low of $31.60 into modestly positive territory at $32.23 per ounce.  With today’s slight gains in precious metals, silver is now up by 0.1% this week while gold remains down by 0.4%.

Gold stocks oscillated between gains and losses this morning, as the Market Vectors Gold Miners ETF (GDX) hovered near the flatline at $51.62 per share.  Notable gold stocks in the black included GDX components Goldcorp (GG), Randgold Resources (GOLD), and Royal Gold (RGLD).  GG advanced by 0.7% to $44.07, GOLD by 0.4% to $119.83, and RGLD by 0.2% to $85.72 per share.

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Gold prices showed a muted response to the latest batch of U.S. economic data, which in total was a mixed bag.  U.S. GDP growth for the third quarter came in at 2.0%, above the 1.8% consensus estimate among economists.  On the negative side, the University of Michigan Consumer Sentiment Index for October fell to 82.6 – below the 83.0 level Wall Street had forecast.

While the price of gold has declined for the past two weeks, it remains higher by 9.7% on a year-to-date basis and on pace for its 12th consecutive annual gain.  One well-respected investor who has been correctly bullish on the yellow metal for several years is David Einhorn, who recently provided his latest outlook for gold prices.  Einhorn, President of Greenlight Capital, reiterated his disdain for the monetary policies of the Federal Reserve and discussed the implications for the price of gold in his latest letter to clients.

“It seems as if nothing will stop the money printing, and Chairman Bernanke in fact assures us that it will continue even after the economic recovery strengthens,” Einhorn wrote. “Specifically, he says, ‘Even after the economy starts to recover more quickly, even after the unemployment rate begins to move down more decisively, we’re not going to rush to begin to tighten policy.’ Apparently, anything less than a $40 billion per month subscription order for MBS is now considered ‘tightening’. He’s letting us know that what once looked like a purchasing spree of unimaginable proportions is now just the monthly budget.”

Einhorn went on to say that “If Chairman Bernanke is setting distant and hard-to-achieve benchmarks for when he would reverse course, it is possibly because he understands that it may never come to that. Sooner or later, we will enter another recession. It could come from normal cyclicality, or it could come from an exogenous shock. Either way, when it comes, it is very likely we will enter it prior to the Fed having ‘normalized’ monetary policy, and we’ll have a large fiscal deficit to boot. What tools will the Fed and the Congress have at that point? If the Fed is willing to deploy this new set of desperate measures in these frustrating, but non-desperate times, what will it do then? We don’t know, but a large allocation to gold still seems like a very good idea.”