GOLD PRICE NEWS – The gold price moved marginally lower Thursday morning, falling $3.00 to $1,384.90 per ounce. The price of gold traded as high as $1,395 overnight, yet fell as markets were set to open on Wall Street. After climbing toward $1,400, the gold price slipped as the U.S. dollar strengthened versus the euro. The euro moved slightly lower following yesterday’s strong gains that saw Europe’s common currency rise over 1.32 against the dollar after European policymakers suggested they may implement more aggressive monetary policies to combat the escalating sovereign debt crisis.
The gold price continues to post strong gains in terms of dollars, euro, and yen. The inverse correlation between the U.S. dollar and the gold price has waned in recent weeks. As Europe’s sovereign debt issues have intensified, the gold price has benefitted. There is a growing lack of faith in all of the world’s leading fiat currencies – brought about by profligate spending, persistent deficits and ballooning debt loads. The policy response to stimulate economic growth has centered on currency debasement – leading many to flock to gold as a safe haven and a store a value for their savings.
Commenting on these global currency devaluations, Bill Gross of PIMCO wrote that lost amid the debate of the Federal Reserve’s second round of quantitative easing (QE2) is a proper analysis of the impact of such policies. Gross, manager of the world’s largest bond fund at PIMCO, argued in his latest Monthly Investment Outlook that “the global economy is suffering from a lack of aggregate demand,” and that “with insufficient demand, nations compete furiously for their share of the diminishing global growth pie.”
However, Gross contended that the U.S. has gone about this competition in a misguided way. While policymakers have focused recently on temporary measures to stimulate short-term consumption – for example the Bush tax cuts and incentives for small businesses to hire – they should instead concentrate on “investments in infrastructure and 21st century education and research,” as well as on manufacturing goods rather than “paper.” Furthermore, politicians should not promote “trade and immigration barriers, currency devaluation and military domination of foreign oil-producing nations.”
Due to a lack of political will in Washington, D.C., Gross predicted that this situation will not improve for the foreseeable future. Instead, he sees the U.S. continuing to engage in “currency devaluation and an increasing emphasis on trade barriers and immigration, as opposed to constructive policies to make this country more competitive in the global marketplace.”
As for the Federal Reserve, Gross once again takes on the central bank, writing that “policymakers at the Fed write trillions of dollars’ worth of checks under the guise of quantitative easing, a policy which takes Charles Ponzi one step further by purchasing the government’s own paper in a last gasp effort to support asset prices.” Gross also mentioned the newly popular “Ben Bernank” YouTube video, a parody of the Fed’s QE2 program.
While not specifically mentioning gold, Gross’ argument makes a rather compelling case for further gains in the price of gold. The ongoing ten-year bull market in the gold price has been fueled by unprecedented levels of currency debasement, particularly in the U.S. Based upon the outlook of the world’s largest fund manager, the macro-economic climate for the gold price remains quite favorable.
