GOLD PRICE NEWS – The gold price rallied Friday morning on news that the U.S. labor market continues to show very little signs of improvement. The price of gold spiked $15.00 off its morning lows, trading as high as $1,540 per ounce before settling back near $1,535 after the U.S. Labor Department announced that 54,000 nonfarm payrolls were created in May. The unemployment rate climbed to 9.1%.
Gold prices were one of the only asset classes outside of U.S. government bonds to move higher on the news. S&P 500 stock futures sank 16.10 to 1296.30 and cyclical commodities such as oil and copper faced heavy selling as well. Oil futures slipped 1.6% to $98.81 per barrel while copper fell 0.5% to $4.06 per pound. Gold’s sister precious metal silver was notably weak, falling 2.7% to $35.22 per ounce.
Yesterday the gold price dipped $5.33, or 0.4%, to $1,534.49, as it continued to consolidate following its previous two weeks of gains. The price of gold initially fell from $1,540 to $1,520 amid broad-based selling in the commodities complex, but pared its losses as the sector bounced back. The modest weakness in the gold price came as the euro advanced 0.8% to 1.4484 against the U.S. dollar. Foreign exchange markets showed a muted reaction to the weak jobs report.
Silver continues to trade weak relative to the gold price, evidenced by both today’s price action as well as yesterday’s, which saw silver drop $0.62, or 1.7%, to $36.23 per ounce. Gold’s sister precious metal is the second weakest component this morning in the 19-member Reuters-Jefferies CRB Index. In spite of the declines, the price of gold and silver remain higher this year by 8.0% and 14.5%, respectively.
Gold stocks traded lower on Thursday, following the gold price, with the AMEX Gold Bugs Index (HUI) sliding 0.7% to 538.61. The HUI fell as much as 2.2% in morning trading, but bounced back modestly into the close. Notable gold equities moving lower included Eldorado Gold (EGO), Goldcorp (GG), and Royal Gold (RGLD). EGO, GG, and RGLD finished lower by 0.7%, 1.3%, and 1.1%, respectively. Gold stocks were modestly lower Friday morning, pressured by the broad-based weakness in stock and commodity markets.
One gold miner in the news on Thursday was Newmont Mining (NEM), the largest U.S.-based gold producer. Richard O’Brien, CEO of Newmont, provided his latest thoughts on the gold price and broader economy in an interview with CNBC.
While he expects to see continued volatility over the next several months, O’Brien forecasted a gold price of $1,575 to $1,650 going into 2012. “Beyond that,” he stated, “I think it really will depend on, do any governments have the courage to do what’s necessary to reign in some of the fiscal irresponsibility which has really led, I think, to gold coming back as a real legitimate asset class.”
Although Mr. O’Brien did not provide a long-term gold price target in this interview, last month he predicted the price of gold could reach $2,000 per ounce within five years.
Newmont Mining’s CEO went on to question the stability of the U.S. dollar as the world’s reserve currency – in light of the ongoing reckless fiscal and monetary policies in America. “You have to wonder about the long-term decline of the U.S. as the central bank of the world,” he noted.
When asked about the current supply-demand environment for the gold price, O’Brien responded that physical demand for gold has “ramped up” in China and India. Exchange-traded funds (ETFs) have also been a substantial source of gold demand over the previous couple years.
He highlighted the fact that central banks around the world have become net buyers of gold – rather than net sellers, as had been the case for the past decade – as another reason behind his bullish gold price outlook. Furthermore, “investment demand for gold is really coming back,” and Newmont “can’t produce enough gold” to satisfy its customers at the present time.
O’Brien subsequently turned his attention to the gold stocks sector, which he labeled as “significantly undervalued” relative to the current gold price. Five years ago, the gold stocks sector as a whole was trading at two times net asset value (NAV), according to the Newmont CEO, and is now at close to one times NAV.
Lastly, he noted that in the current gold price environment, Newmont’s cash flows are “terrific,” and are a key reason why the company recently implemented a dividend linked to the price of gold. In contrast to gold ETFs, which charge a fee, investors can purchase shares of NEM and receive a benefit in the form of the gold price-linked dividend.
Today’s news from the Labor Department paints a dismal picture for the U.S. economy, a fact that will likely keep Chairman Bernanke and the U.S. Federal Reserve from moving on interest rates for the balance of 2011. Speculation for a new round of quantitative easing could intensify as well. With interest rates at zero and real interest rates firmly in negative territory, the macro-economic backdrop for the gold price continues to be supportive.
