GOLD PRICE NEWS – The gold price slid $22.46, or 1.4%, to $1,624.34 per ounce on Wednesday as yesterday’s sell-off in precious metals continued this morning. The price of gold declined amid strength in the U.S. dollar after the March ADP Employment Report came in at 209,000 – ahead of the 206,000 consensus estimate among economists.
With today’s weakness, the gold price fell to its lowest level since January 10th – 12 weeks ago – and cut its year-to-date gain to just 3.9%. Silver tumbled in concert with the gold price, by $1.02, or 3.1%, to $31.59 per ounce. U.S. equity markets headed south as well, with the S&P 500 Index down by 0.8% at 1,402.20.
On Tuesday the gold price dropped $30.60, or 1.8%, to $1,646.80 per ounce after the latest Fed minutes revealed that a third round of quantitative easing (QE3) is becoming less likely in the foreseeable future. The price of gold stabilized near $1,675 yesterday morning, but turned sharply lower following the release of the Fed minutes. The yellow metal’s slide was accompanied by a spike in the U.S. dollar, as less money printing would generally be beneficial for the greenback.
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Silver retreated alongside the price of gold, by $0.42, or 1.3%, to $32.61 per ounce. The broader commodities complex came under pressure as well. The cyclically-sensitive copper price fell 0.8% to $3.89 per pound, while crude oil futures slid 1.0% to $104.15 per barrel.
Yesterday’s gold price sell-off provided a considerable headwind for gold shares, as the Market Vectors Gold Miners ETF (GDX) tumbled $1.63, or 3.2%, to $48.76 per share. In doing so, the GDX gave back nearly twice Monday’s 1.7% rally, and extended its year-to-date loss to 5.2%. Notable decliners in the sector yesterday included Newmont Mining (NEM), which slipped 3.4% to $50.34 per share after being downgraded by Citigroup to Neutral from Buy. The firm also slashed its price target on NEM to $56.00 from $82.00 per share.
The Fed minutes – a recap of last month’s Federal Open Market Committee (FOMC) meeting – provided a less dovish tone to the outlook for U.S. monetary policy than investors appeared to be expecting. Furthermore, the minutes described the state of the labor market in a more positive light, noting that “Participants generally observed the continued improvement in labor market conditions since the January meeting. A couple of participants stated that the progress suggested by the payroll numbers was also apparent in a broad array of labor market indicators, and others noted survey measures suggesting further solid gains in employment going forward.”
Several Fed members contended that “inflation pressures could increase as the expansion continued; these participants argued that, particularly in light of the recent rise in oil and gasoline prices, maintaining the current highly accommodative stance of monetary policy over the medium run could erode the stability of inflation expectations and risk higher inflation.”
As for the possibility of QE3, the minutes noted that “a couple of members couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.” The above language included a noticeably more hawkish tone than the January FOMC minutes, which pointed out that “a few members observed that, in their judgment, current and prospective economic conditions–including elevated unemployment and inflation at or below the Committee’s objective–could warrant the initiation of additional securities purchases before long.”
The gold price, along with most other U.S. dollar-denominated asset classes, initially suffered steep losses after the Fed minutes were published. However, the markets – albeit the price of gold less so than cyclically-sensitive commodities and stocks – pared their losses as the close of trading approached.
The modest rebound in the markets coincided with the release of a note by Jan Hatzius, Goldman Sachs’ chief U.S. economist. Hatzius, who recently predicted that the Ben Bernanke-led central bank will launch QE3 by June of this year, reiterated his monetary policy forecast in spite of Tuesday’s Fed minutes.
Commenting on the latest developments, Hatzius acknowledged that “Minutes from the March 13 FOMC meeting showed that the committee did not discuss monetary easing options in detail, in contrast to our expectations…March FOMC minutes make easing at April meeting unlikely without substantial deterioration in the outlook.”
However, the Goldman Sachs economist went on to say that “Officials’ views on the (economic) outlook were only a little more upbeat than previously.” In summary, Hatzius asserted that “an announcement of additional asset purchases remains our baseline, with June the most likely timing at this point.”
