GOLD PRICE NEWS - The gold price moved higher Monday morning, rising $10.90 to $1,226 per ounce. Gold futures on the COMEX rose to a six week high as the gold price continues to outperform the more cyclical commodity complex. After sliding $106, or 8.4%, from late June to late July, the price of gold has stabilized and begun to work its way higher. The gold price has appreciated 3% in August, climbing as investment funds have flowed out of riskier asset classes. Yields on government bonds continue to plummet, with the ten-year yield falling to 2.55%, its lowest level in over a year.
News that Japan’s economy grew at a slower pace than expected in the second quarter sent stock prices lower overseas. Japans’ gross domestic product rose at an annualized 0.4%, down from 4.4% growth in the first quarter. Worries over the slowing pace of global growth have helped spur a correction in equities and a rise in the gold price. Gold stocks have followed the gold price higher, bucking the downtrend in stocks and commodities, such as crude oil - which declined 6.7% last week. The Market Vectors Gold Miners ETF (GDX) rose 3.2% last week and is set to move higher by 1.5% heading into the open Monday morning.
There have been a growing number of investment strategists calling for a deflationary pulse to send the price of nearly every asset class markedly lower. This group, among them Robert Prechter of Elliot Wave International, is calling for not only stocks and commodities to dive, but gold prices as well. However, a recent piece by Casey Research highlighted the positive performance of the gold sector during the deflation-plagued 1930s. While the gold price was fixed by the government at $20.67 per ounce before being revalued to $35, the prices of gold mining stocks rose dramatically.
According to Jeff Clark, of Casey Research, “From 1929 until January 1933, the stock of Homestake Mining, the largest gold producer in the U.S., rose 474%. Dome Mines, the largest Canadian producer, advanced 558%. In spite of the gold price being fixed at the time, gold stocks rose dramatically…At the same time, the DJIA lost 73% of its value.” Clark urged his clients to increase their exposure to the gold price amid the recent talk of a fresh round of quantitative easing by the U.S. Federal Reserve, stating, “I think there’s another round of money printing before this year is over. And sooner or later, that extra money is going to dilute every dollar you own, giving us an inflationary hit as bad as the deflationary one we got during the Great Depression.”
The gold price is hovering just above its 50-day moving average, in an area of resistance marked by the $1,226 per ounce highs posted in December of 2009. Since then, while the price of gold has gone on to make fresh record highs of $1,263 per ounce, the sector has been mired in a low volatility consolidation. The efforts by Chairman Bernanke and the U.S. Federal Reserve to print money to combat the economic downturn are a risky proposition. Thomas Hoenig, the president of the Kansas City Federal Reserve Bank, gave one of the sharpest criticisms from a sitting Fed member, calling zero interest rates “a dangerous gamble.”
Hoenig has repeatedly noted his concerns that the Fed’s monetary policy has helped contribute to asset bubbles and increased the intensity of the downturns in the business cycle. Both institutional and retail investors have increased their exposure to gold bullion and investments tied to the gold price in response to the Fed’s aggressive fight against deflation.
