GOLD PRICE NEWS – The gold price moved back above $1,400 per ounce Wednesday morning, rising to $1,404.50 per ounce on the back of a decline in the U.S. dollar and a continued flight to safety amid the unrest in the Middle East. The price of gold was one of the few safe havens yesterday as global financial markets tumbled amid violence in Libya and heightened geo-political uncertainty. With this morning’s gains in the gold price, the yellow metal extended its monthly gain to 5.4%.
Silver advanced alongside the gold price Wednesday, rising $0.20 to $33.29 per ounce after rallying 2.4% yesterday. While silver and gold prices shined during Tuesday’s trading session, other metals faced steep selling pressure. Platinum slid $52.00, or 2.9%, to $1,790.30 per ounce, palladium plunged $53.40, or 6.2%, to $804.30 per ounce, and copper dropped $0.16, or 3.7%, to $4.32 per pound.
Gold and silver equities initially displayed strength, but eventually succumbed to the broad-based sell-off. The Philadelphia Gold & Silver Index (XAU) rose as much as 1.1% to 214.75 in morning trading, but closed lower by 1.5% at 209.25. Notable decliners included Freeport McMoRan Copper & Gold (FCX) and Kinross Gold (KGC), which settled down 4.9% and 5.7%, respectively.
The Dow Jones Industrial Average (DJIA) plunged 178.46 points, or 1.4%, to 12,212.79. This was the Dow Jones’ worst day since a 2.5% slide on August 11, 2010. Investor complacency quickly evaporated amidst the sell-off, evidenced by 27.2% rise to 20.80 in the CBOE Volatility Index (VIX). While this was the largest one-day rise in the VIX since it spiked 28.9% to 45.79 on May 20, 2011, the “fear index” is nowhere near historically high levels.
The strong performance by the gold price paled in comparison to the spike in crude oil. WTI oil futures, which are up another 0.50% today to $95.86 per barrel, finished up $5.71, or 6.4%, to close at a 28-month high yesterday. The oil spike came as violence in Libya compelled several companies to halt production in the country, which is the 12th largest exporting nation in the world and a member of Organization of Petroleum Exporting Countries (OPEC).
Libya also declared force majeure on its oil exports, which amount to approximately 1.5 million barrels per day. Goldman Sachs’ David Greely wrote in a note to clients that “should this production be lost to the market, it would require over half of OPEC’s spare capacity to replace.”
The violence in Libya has come as its citizens are seeking the end of Muammar Gaddafi’s four decades as the nation’s dictator. A defiant Gaddafi fired back at critics in a speech on Tuesday, vowing to remain in power and “to stay and to die a martyr and never give up.” German Chancellor Angela Merkel called Gaddafi’s speech “very, very frightening,” and stated that Germany would “exhaust every possibility to exert pressure and influence on Libya” if Gaddafi’s actions lead to further bloodshed.
While investors are rightfully focused on Libya at the present time, social unrest has escalated across other nations in Africa and the Middle East – including Tunisia, Egypt, Algeria, Bahrain, and Yemen. There have been reports that several dictators in these nations have fled with physical gold in hand, an indication of the rising stature of the yellow metal.
Although the size and influence of many of these nations is relatively small, collectively they have shown to have a substantial impact on financial markets. Fears that turmoil may spread to larger countries such as Saudi Arabia and Iran has benefitted the precious metals complex and is acting as a tailwind for the price of gold.
