GOLD PRICE NEWS - The gold price traded near unchanged, at $1209.50 per ounce, Thursday morning while stocks and commodities soared. After hitting a high of $1218 overnight, the price of gold backed up while more cyclical investments soared on the news that China denied rumors it was prepared to liquidate European bond investments. China’s State Administration of Foreign Exchange called the report “groundless” and stated that Europe was a “major market for investing China’s exchange reserves.”
The euro bounced on the news, trading near 1.23 against the U.S. dollar. Speculators remain with large short positions in Europe’s common currency, which has fallen relentlessly over the past month. The U.S. dollar has been the beneficiary of the recent decline in risk appetite - with the gold price and U.S. and German government debt also seeing investment inflows.
The gold price was one of the few asset classes to hold its gains yesterday when the China rumors surfaced during yesterday’s trading session. After breaking above 1090, the S&P 500 cratered to close at 1067.95, its lowest close since February 8. Gold stocks came under pressure as well despite the strong gold price, succumbing to the liquidation affecting the broader stock and commodity markets. Thursday morning the gold miners were moving higher heading into the open as Barrick Gold (ABX), Newmont Mining (NEM), and Goldcorp (GG) all traded up roughly 1%.
As the gold price ascent has continued in 2010, many high-profile investors and market pundits have shared their views on where the price of gold is headed. Long-time gold bull Marc Faber, author of the Gloom, Boom & Doom Report, in a recent interview with Bloomberg, reiterated his bullish view on gold and gold-related investments. Faber noted that the easy monetary policies that central banks across the globe continue to implement to attempt to stave off the deflationary effects of the financial crisis present a bullish backdrop for the gold price.
With risk aversion rising significantly in financial markets in recent weeks, European leaders brokered a joint $1 trillion rescue package that included support from the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF). One of the key tents of the rescue package, designed to prevent the proverbial run on the bank in not only Greece, but other member states such as Spain and Portugal, is a quantitative easing program.
Following in the footsteps of the Chairman Bernanke and the U.S. Federal Reserve, the ECB will engage in money printing measures to help support European sovereign debt. The gold price, denominated in euros, soared to all-time highs on the back of the news. As more and more money is created out of thin air, the gold price will continue to be supported and appears likely to continue to set new record highs.
As a result of rising government deficits and the consequences of the fiscal and monetary stimulus, Faber’s outlook on the global economy is “very bearish.” Central banks insistence on implementing additional easy monetary policies will further debase fiat currencies, according to Faber. He described these measures as a “race in the purchasing power of paper money to the bottom,” and opined that the only sectors to maintain their purchasing power will be precious metals, particularly gold. Furthermore, Faber noted that when he looks at “all the asset classes in the world…and the forthcoming disaster that I envision in the next few years, then I am quite happy to hold physical gold.”
