GOLD PRICE NEWS - The gold price rose $5.65 to $1,236.79 Wednesday morning while stocks and commodities were marginally lower. Concerns over the health of the U.S. economy are intensifying, driving investors into investments tied to the gold price, such as gold bullion exchange traded funds and gold mining producers and explorers.
The recovery is increasingly being called into question as a flurry of negative data points have emerged over the past few months. Today’s July durable goods data showed a rise of 0.3% versus expectations of 3.0%. Excluding transportation, durables fell 3.8% - versus market expectations of a rise of 0.5%. This morning’s data comes following Tuesday’s dreadful existing home sales data, which showed a month-over-month decline of 27.2%, the largest one-month drop on record. The gold price moved higher, and stock futures lower, upon the release of both data points.
At a conference earlier this month, Treasury Secretary Timothy Geithner warned that the housing market faced additional downside risks if the government failed to support it. “Without such support, the risk is that future recessions could be more severe because the financial system would not have the capital to support mortgage lending on an adequate scale,” Geithner said. Financial assets have faced the headwinds of stagnant housing and labor markets for over two years, a fact that has led to increased investment demand for gold.
The influx of funds into hard assets such as gold, oil, and agricultural commodities continues to be strong. According to Barclays Capital, a mere $6.5 billion was held in commodity exchange-traded products in late 2005. In May of this year, this figure grew to $114 billion. Gold prices have been buoyed by investment demand as ETFs such as the SPDR Gold Trust (GLD) continue to grow their asset base. ETF Securities reported that exchange-traded funds backed by gold garnered inflows of $2.8 billion in the first six months of 2010. The GLD, which acts as a proxy for the gold price, currently holds 41.7 million ounces of gold, valued at 51 billion using the current spot gold price.
Peter Blodgett, of Twin Fields investment strategy team, has continued to call for a higher gold price, commenting that gold is being supported by the “perception that the Fed is on guard for a potential double dip recession, as well as a perception that the Fed is monetizing the debt by directly purchasing government debt.” The note went on to state that “The poor performance in equities since the Fed’s decision has enabled gold to benefit as a store of value against declining equity values. Gold has risen 2.8% since the Fed’s decision. Gold can continue to compete with treasuries for investment, as opportunity costs of holding gold are low due to falling interest rates.”
The Dow Jones Industrial Average (DJIA) has declined 4.1% in August while the gold price has gained 4.6%. Stronger gold prices have helped gold miners to buck the trend of lower equity prices. Agnico-Eagle Mines (AEM) and Eldorado Gold (EGO) have risen 11.9% and 10.4%, respectively, this month - helping to make the gold sector one of the few pockets of strength.
