GOLD PRICE NEWS – The gold price dipped Monday, trading lower by $7.00 at $1,781.50 per ounce. Gold prices have been relatively stable amid regime changes in both Greece and Italy. The resignation of Silvio Berlusconi from the post of Prime Minister initially led to lower bond yields in the fiscally-strapped nation, but sellers came in and sent yields higher. Italian 10-year bond yields traded at 6.61% heading into the opening bell on Wall Street.
The euro fell 0.6% to 1.366 against the U.S. dollar this morning. Strength in the dollar pressured commodity prices, notably crude oil, which traded lower by 0.7% at $98.30 per barrel. Last week, the gold price climbed $33.86, or 1.9%, to $1,788.60 per ounce as euro zone sovereign debt worries continued to underpin the yellow metal. The spot price of gold briefly surpassed the $1,800 level last Tuesday before turning sharply lower as widespread liquidation gripped financial markets on Thursday. The gold price fell as low as $1,734.60, but rebounded on Friday to end the week in positive territory. On a month-to-date basis, the price of gold is now higher by 4.3%, and by 25.9% year-to-date.
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Silver rose alongside the gold price last week, gaining 1.1% to $34.68 per ounce. Silver prices were boosted by strength across the entire precious metals complex, as well as by gains in cyclical commodities and other U.S. dollar-denominated asset classes. Although silver continues to trail the gold price this year, it is now up 1.3% in November and 12.1% in 2011. Silver fell $0.14 to $34.54 per ounce early Monday.
Gold shares posted their third straight week of gains, as the Market Vectors Gold Miners ETF (GDX) climbed $1.01, or 1.7%, to $62.31 per share. In doing so, the gold stocks ETF reached a seven-week high and returned to positive territory – advancing 1.1% on a year-to-date basis. Two of the sector’s top performers last week were its two largest components – Barrick Gold (ABX) and Goldcorp (GG) – which advanced 3.4% and 4.4%, respectively. Newmont Mining (NEM), the only gold stock included in the S&P 500 Index and the largest U.S.-based producer, posted a more modest weekly gain of 1.6%.
The center of sovereign debt concerns shifted last week from Greece to Italy, as surging Italian bond yields added further uncertainty to an already dire situation. Speculation has risen that Italy will be the next member of the PIIGS to need financial assistance from some combination of the European Financial Stability Facility (EFSF), the International Monetary Fund (IMF), and/or the European Central Bank (ECB). While the EFSF would likely be the initial source of aid, its current size is unlikely to be sufficient to stem the tide of the Italian crisis.
With the situation in Italy escalating, several economists and policymakers have called for the ECB to step up to the plate with a robust set of money printing measures to help combat the crisis. One notable individual in this camp is Portuguese President Anibal Cavaco Silva, who stated in a Bloomberg interview last week that the ECB “has to go beyond a narrow interpretation of its mission and should be prepared for foreseeable intervention in the secondary market, not as the central bank has done up to now…It has to be able to be a lender of last resort.”
Notwithstanding the fact that explicit money printing is in violation of the Maastricht Treaty – which led to the creation of the euro currency, and over whose signing Silva presided – support for the ECB to ignite the printing presses has risen substantially as the economic environment in Italy has deteriorated. The gold price stands to be a prime beneficiary of further currency debasement.
In the U.S., possible spillover effects of the sovereign debt crisis continue to weigh on the economic outlook. While some economic data points have improved in recent weeks – including the better than expected University of Michigan Consumer Sentiment Index last Friday – the Federal Reserve remains quite concerned about the potential for a renewed recession. The Bernanke-led Fed will be keeping a close on the slew of economic reports due out this week – many of which are likely to serve as catalyst for the price of gold.
Two key measure of inflation – the Producer Price Index (PPI) and the Consumer Price Index (CPI) – will be released on Tuesday and Wednesday, respectively. Retail sales and the Empire Manufacturing Index will also be reported on Tuesday, followed by weekly jobless claims and housing starts on Thursday. The week then wraps up on Friday with the Philadelphia Fed Index – another critical manufacturing gauge – as well as a report on leading indicators of future economic activity.
