GOLD PRICE NEWS - The gold price fell Tuesday morning, dropping $2.30 to $1,181.50 per ounce as the U.S. dollar strengthened versus the euro. The gold price remains engulfed in a correction that has led to a 6.8% decline over the past four weeks. Despite the recent rise in the euro, it is fallen 10.6% in 2010 against its U.S. counterpart. The euro gold price is down an even steeper 8.5% over the past month - although it is still up 15.1% over the past six months.

Bullish sentiment toward the gold price continues to drop, evidenced by the current 60% Market Vane Bullish Consensus reading on gold. This is the lowest level since December 9, 2008 - a few weeks after the gold price plunged under $700 per ounce. Despite the fact that the price of gold is still hovering near $1,200, there is very little speculation in the sector. The share prices of gold producers and explorers have largely underperformed the gold price thus far in 2010. The Philadelphia Gold and Silver Index (XAU) is lower by 1.78% this year, compared to a 7.5% rise in the spot gold price.

The gold price and the gold mining companies have been under pressure from the general liquidation pressure facing the broader stock and commodity markets. This morning saw the release of more weak data on the housing market as U.S. housing starts declined 5% to an eight-month low. Stock futures are pointing to another lower open on Wall Street. Commodities are lower once again with oil leading the Reuters/Jefferies CRB Index to the downside. The CRB is 11.3% off its early January highs, led by a 19% drop in the price of natural gas.

In an editorial in Tuesday’s Financial Times, Niall Ferguson, Harvard professor and acclaimed author, chastised “modern Keynesians” for learning “nothing” from past economic history. Ferguson argues today’s financial situation is more comparable to the 1940s that the 1930s as the world is engaged in “world war finance without the war.” He warned against a potential revival of past episodes when “money creation by the central bank triggered an upsurge in inflationary expectations.” While Ferguson does not argue that inflation is an issue, he does emphasize the declining confidence in the private sector and toward America’s central government. This waning confidence has been expressed through the gold price rising versus the U.S. dollar.

The gold price has risen to record highs in not only U.S. dollars, but in terms of most of the developed world’s currencies. Deficits and debts have run amok and there is very little that suggests the balance sheets of sovereign governments are on the verge of improving. The falling confidence that Ferguson alludes to is leading to less hiring, less consumption, and more deflation. A pro-growth agenda that incentivizes corporations to spend the record levels of cash that are sitting on their balance sheets - not handouts such as California’s “Cash for Appliances” program - is the way to stimulate the economy.

Unfortunately, the fiscal situation is likely to continue to deteriorate as politicians pander to their constituents. The result will be more of the same as the degradation of the U.S. dollar continues - an outcome only a gold price bull could love.