GOLD PRICE NEWS – The gold price moved slightly lower Tuesday morning, sliding $4.80 to $1,600 per ounce. Gold prices have climbed for eleven consecutive days, the longest such streak in 31 years. Yesterday, the gold price surpassed $1,600 per ounce for the first time on its way to yet another series of new all-time highs. The price of gold reached an intra-day record high of $1,610 per ounce before settling near $1,605 per ounce. The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, advanced $1.37, or 0.9%, to $156.57 per share.
The entire precious metals sector posted gains yesterday alongside the gold price, with silver climbing 2.5%. However, silver prices backed off early Tuesday, sinking 1% to $40.08 per ounce. The “white” metals advanced strongly on Monday with Platinum climbing $21.70, or 1.2%, to $1,777.20 per ounce and palladium rising $16.15, or 2.1%, to $796.80 per ounce. Other commodities were mixed, as copper inched lower by 0.1% to $4.41 per pound, while crude oil dropped $1.31, or 1.4%, to $95.93 per barrel. Both copper and oil advanced this morning amid a weaker U.S. dollar and the broad-based rally in the broader stock and commodity markets.
New record highs in the price of gold and silver have lifted precious metals equities over the past two weeks. The Philadelphia Gold & Silver Index (XAU) rallied 1.2% to 219.47 yesterday, closing at its highest level since May 2, 2011. The XAU has gained 9.1% in July and is on pace for its best monthly performance since a 17.3% surge in November 2009. Notable advancers on Monday included AngloGold Ashanti (AU), Barrick Gold (ABX), and Kinross Gold (KGC) – which added 3.1%, 1.3%, and 1.5%, respectively.
While the gold price and gold equities advanced, the broader markets tumbled amid rising concerns over the European sovereign debt crisis and the looming U.S. debt ceiling deadline. The Dow Jones Industrial Average (DJIA) slid as much as 183.5 points, before paring its losses to close lower by 94.57 points, or 0.8%, at 12,385.16. The CBOE Volatility Index (VIX) spiked 7.3% to 20.95, as investor risk aversion moved higher.
European markets experienced widespread selling after a host of analysts expressed concerns over the lax assumptions made in the latest round of euro zone bank stress tests. J.P. Morgan wrote in a note to clients that “We remain worried about the secondary effect of the sovereign crisis into funding. Funding is the key concern, and without stress liquidity assumptions, the picture remains incomplete – especially in current market conditions.”
Michael Churchill, of Churchill Research, sounded even more cautious in his latest report. “This week’s plunge in Italian sovereign debt takes the European debt crisis to a whole new level,” he wrote. “It’s time to start thinking about apocalyptic scenarios. Live possibilities include Italian default, crack-up of the Eurozone, global recession, European hyperinflation” and/or a $3,000 gold price.”
“The one scenario that is increasingly unlikely is that everything just goes back to normal,” Churchill continued. “The debts are too large. The banks are too weak. The policies are too anti-growth.”
Churchill elaborated on the implications for the gold price, noting that while “it’s tempting to say that gold should be a winner regardless of how the Europe crisis unfolds,” that scenario “may be too simplistic.” In a severe crisis where investors are forced to liquidate any and all assets to raise cash, he noted that the price of gold could suffer, as was the case in 2008.
However, he contended that “It seems pretty clear that the path of least resistance for gold is upward over any length of time…the ECB has an unlimited swap line with the Fed. The implication is that the Fed may find itself called upon to print substantial amounts of money to help Europe, thereby causing gold to rise in both euros and dollars.”
“At the least, one can reasonably assume the Fed will pursue an easier interest-rate course than might otherwise have been the case,” Churchill concluded. Coupled with the potential for a third round of quantitative easing (QE3), as Chairman Bernanke discussed last week, the long-term outlook for the gold price remains quite favorable.
