GOLD PRICE NEWS - The gold price hovered just above $1,200 Monday morning, climbing $1.00 to $1,206.35 per ounce. The gold price has closed higher for eight consecutive days, moving back up to its 50-day moving average of $1,211. The winning streak has seen the gold price advance on a series of small upside moves, a 4.1% rise from the $1,158 low posted in late July.
After facing a series of outflows, gold bullion exchange-traded funds which act as a proxy for the gold price, such as the SPDR Gold Trust (GLD) have stabilized. The share prices of gold producers and explorers have also appreciated after falling in sympathy with the gold price. The Philadelphia Gold and Silver Index (XAU) climbed 3.4% last week to 175.49, led by a 5.6% rise in Barrick Gold (ABX), the world’s largest gold producer.
The gold price has been supported by the challenging macro-economic backdrop. Last Friday’s release of the July jobs data came in weaker than market expectations. While the unemployment rate held steady at 9.5%, this was chiefly the result of the shrinking workforce. Additionally, the June report was revised down by nearly 100,000, suggesting that the jobs picture remains decidedly negative. The weak employment report bolstered the gold price and sent bond yields lower - with the two-year Treasury note falling to a record low of 0.50%.
The Federal Reserve Open Market Committee (FOMC) meets on Tuesday amid increasing concerns over the specter of deflation. Chairman Bernanke told Congress in late July that the outlook over the economy was “increasingly uncertain.” Following up on Bernanke’s testimony was Fed Governor James Bullard’s recently released 24-page treatise outlining the threat of “Japanese-style deflation” and his suggestion that the Fed’s quantitative easing initiative be expanded in the event that price declines accelerate. The gold price has been supported by central bankers efforts to support and stimulate the economy through a wide range of monetary policy initiatives, most of which have acted to debase the currency.
In this weekend’s Barron’s, journalist Jonathon Laing suggests, “The Fed should, and probably will change its tune by the fall and fire up the printing presses.” Postulating that additional fiscal stimulus is not politically feasible at this point, “America should print money furiously to head off Japanese-style malaise,” to the tune of “perhaps $2 trillion of securities.” Laing acknowledges that such money supply growth “can both fan inflation and debase the currency,” but suggests that the lack of inflation pressures lower the risks of printing money. In what is surely music to the ears of gold price bulls, Laing states that “It’s high time to get out the money-printing machines.” The article makes no mention of the gold price or investments tied to the gold price, such as gold stocks and gold ETFs, but the potential implications for the under-owned asset class are profound.
Fiat money continues to lose purchasing power, evidenced by the rising gold price in terms of not only the U.S. dollar, but also every currency in the developed world. In terms of the U.S. dollar, euro, British pound, and Japanese yen, the gold price is up 26%, 35%, 32%, and 11%, respectively over the past 52 weeks. Even in terms of the strong commodity currencies such as the Canadian and Australian dollars, the gold price is up 19.8% and 15.1%, respectively, over the past year.
The gold price has been mired in a trading range between $1,150 and $1, 250 per ounce for most of 2010. If the Fed announces a resumption of its money-printing campaign at tomorrow’s FOMC meeting, the chances of an upside breakout would increase materially.
