GOLD PRICE NEWS – The gold price hovered near unchanged Thursday, trading at $1,459.50 per ounce after the European Central Bank (ECB) raised its benchmark interest rate to 1.25% from 1%. Currency markets have anticipated the interest rate hike and as a result, the euro has surged versus the U.S. dollar. The euro traded to new 52-week highs yesterday against the greenback at 1.43. The gold price has advanced 2.1% this week while silver has gained 4.4%.
The rate hike by the ECB was its first such move in nearly three years. ECB President Jean-Claude Trichet lifted interest rates to quell budding inflation, ignoring critics who argue the deflationary impact of the region’s sovereign debt issues should trump the recent rise in prices. Currency markets have anticipated the interest rate hike and as a result, the euro has surged versus the U.S. dollar. The euro traded to new 52-week highs yesterday against the greenback at 1.43. The euro-denominated gold price remains 2.5% below its high print posted in 2010.
The U.S. dollar-denominated gold price continued its record-setting run Wednesday, reaching a new all-time high of $1,463.70 per ounce. As trading progressed, the spot price of gold pared its gains, but managed to close in positive territory by $3.44 at $1,459.73 per ounce. With its rally, the gold price is on pace for its best week since mid-February.
The silver price marched higher alongside gold, reaching $39.785 per ounce on Wednesday. This marked the eighth day this year that the price of silver reached a new 31-year high, and is within a fraction of $40 for the first time since the Hunt Brothers attempted to corner the market in 1980. Silver has also continued to outperform the gold price in 2011, surging 28.6% versus a 2.7% rise for the yellow metal.
Gold and silver equities were mixed, with the Philadelphia Gold & Silver Index (XAU) finishing the session lower by just 0.1% at 224.98. The XAU is now lower by 0.7% year-to-date, and is 3.3% below its all-time high of 232.72, reached on December 7, 2010. Notable advancers included Harmony Gold (HMY) and Kinross Gold (KGC), with gains of 1.5% and 1.0%, respectively. Shares of Freeport-McMoRan Copper & Gold (FCX) and Newmont Mining (NEM) declined 0.6% and 0.9%, respectively.
Further weakness in the U.S. dollar helped boost the price of gold and silver as the greenback continued its slide against many of the world’s other leading currencies. The euro advanced as much as 0.7% to 1.4329 against the dollar on Wednesday, as investors shrugged off two key disappointing headlines out of Portugal.
While Portugal was able to sell €455 billion ($649.1 billion) in 12-month bills, it did so at an average yield of 5.902% – far above the 4.331% rate from the previous auction of government securities. Even more concerning was the fact that the Portuguese government sold €550 billion of 6-month bills at 5.117%, far above of the 2.984% from the previous auction. The yield on the Portuguese 10-year bond, having already reached new record highs in March, climbed above 9% for the first time ever this week.
The gold price reacted positively to the Portuguese auction, rising to its new record high. Later in the day, Portugal’s Prime Minister, Jose Socrates, announced that the nation requested financial assistance from the European Union. The price of gold again responded favorably, rebounding from its intra-day low.
In a televised statement in Lisbon, Socrates stated that “I tried everything but we came to a moment that not taking this decision would bring risks we can’t afford. The government decided to make the European Commission a request for financial aid.” This morning, various reports suggest Portugal is set to seek a $107 billion rescue package. The International Monetary Fund (IMF) noted yesterday that it was prepared to provide aid to Portugal if needed.
Portugal will now become the third European nation to need a bailout, following Greece and Ireland. Policymakers in Portugal had been adamant in recent months that their country would not require financial assistance, only to have the markets embarrass them for their hubris. The string of bailed out-nations is reminiscent of U.S. banks in 2008 when executives at Bear Stearns, AIG, Citigroup and several other firms falsely assured investors they would not need government aid.
Given the fact that the response of European policymakers has not addressed the fundamental problem of excessive debt and deficit levels, it is unlikely that the sovereign debt crisis will end with Portugal. Spain and Italy are the next and final two members of the “PIIGS” lurking in the shadows, and if history is any guide, markets are likely to pressure them into a bailout in the not too distant future. If, or as many would say, when that time comes, the gold price is likely to be one of the few beneficiaries of the financial turmoil that ensues.
CLIFTON STAR RESOURCES (CFO.TSXV) surged 15.7% to C$4.05 per share on Thursday, making it one of the top performers in the gold sector. The Canadian-based gold company is expected to release an updated NI 43-101 compliant resource estimate for its Beattie, Donchester, and Duquesne Projects this quarter. Clifton Star’s properties are located near the prolific Porcupine-Destor Deformation Zone in Quebec, Canada. The multi-million ounce gold project is a joint venture between Clifton Star and Osisko Mining (OSK.TSX), a gold producer with a market capitalization of $5.1 billion. Full Clifton Star Resources News Release.