GOLD PRICE NEWS – The gold price hovered near unchanged Tuesday morning, trading at $1,516 per ounce. The price of gold showed little reaction to the news that Chinese industrial output rose 13.3% in May – exceeding economists’ expectations. Unlike gold prices, stocks surged higher on the news. S&P 500 stock futures rose 13.50 to 1279.70, following higher equity prices in Europe and Asia. Economically-sensitive commodity prices climbed as well, led by copper’s 2% gain to $4.14 per pound. Silver moved marginally lower, off $0.13 to $34.65 per ounce.
The gold price began the week with its worst performance in over a month, sinking $15.32, or 1.0%, to $1,516.01 per ounce. The slide in the price of gold was fueled by broad-based selling in the commodities complex. Silver declined in concert with the gold price, tumbling $1.43, or 4.0%, to $34.76 per ounce. Oil prices fell 2.4% to $97.08 per barrel, while copper dipped 0.4% to $4.06 per pound.
Gold and silver equities sold-off alongside precious metals with the Philadelphia Gold & Silver Index (XAU) retreating 2.26 points, or 1.2%, to 191.47. With Monday’s drop, the XAU is now lower by 8.3% this month and by 15.5% year-to-date. Notable gold shares moving lower included Goldcorp (GG) and Harmony Gold (HMY), which fell 2.0% and 3.1%, respectively. Among silver equities, Pan American Silver (PAAS) and Silver Wheaton sunk 2.2% and 4.7%, respectively. Gold and silver stocks advanced higher early Tuesday morning.
Over the past month, financial markets have come under heavy selling pressure as investors remain skeptical that the Federal Reserve will launch a third round of quantitative easing (QE3) in the near future. While equities and cyclical commodities have bared the brunt of the selling, the gold price has also been negatively impacted by the likely absence of QE3.
Along with the lack of additional money printing by the Fed, economic data in the U.S. has noticeably deteriorated in recent weeks. This trend was most evident in the May non-farm payrolls report, which came in far below expectations.
In light of the Fed’s plans to reduce monetary stimulus, a growing chorus of individuals have called for the federal government to pick up the slack by implementing a new round of fiscal stimulus. One of the most prominent members of this group is Larry Summers, U.S. Treasury Secretary under Bill Clinton from 1999 to 2001, former president of Harvard University, and Director of President Obama’s National Economic Council from 2009 to 2010.
In an opinion piece entitled “How to avoid a lost decade” in Monday’s Washington Post, Summers urged President Obama and Congress to implement further stimulus measures to prevent the onset of a double-dip recession. “The central irony of financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending,” according to the Harvard professor, “it is resolved only by increases in confidence, borrowing and lending, and spending.”
For those calling for Washington to tighten its belt and rein in ballooning deficits, Summers countered by saying that “Discussions about medium-term measures to restrain spending and raise revenue need to be coupled with a focus on near-term growth.”
While Dr. Summers is a highly credentialed individual, his policy suggestions were just the latest example of Keynesian economists choosing to kick the can further down the road, rather than deal with the fundamental problem of excessive debt levels. Moreover, he conveniently ignored the substantial unintended consequences of further stimulus – including currency debasement, inflation, and the potential for further financial bubbles.
Dr. Summers has clearly failed to notice the message sent by the substantial rise in the gold price over the past decade. Fortunately, there are some economists, such as Nouriel Roubini – one of the few individuals who, unlike Summers, who warned of a financial crisis prior to 2008 – who express concern over repeating the same mistakes made in the past. Roubini noted, “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”
As long as central bankers and politicians attempt to solve every problem by throwing more money at it, the long-term trend in the U.S. dollar will be down – an outcome very supportive for the gold price.
