IBT: Gold Price Tumbles to 4-Month Low, U.S. Dollar Climbs
GOLD PRICE NEWS – The gold price sunk $36.17, or 2.2%, to $1,602.70 per ounce Tuesday morning amid widespread weakness in financial markets. The price of gold was pressured by a further decline in the euro/U.S. dollar currency cross as the European sovereign debt crisis continued to weigh on investors. With the sell-off, the gold price reached its lowest level since January 4th of this year and cut its year-to-date gain to just 4.8%.
Silver fell $0.65, or 2.2%, to $29.45 per ounce alongside the gold price, while copper futures retreated 2.8% to $3.67 per pound. European equity markets were lower across the board, while U.S. markets also opened in the red. The Dow Jones Industrial Average (DJIA) slid 0.7% to 12,928.45 and the S&P 500 Index dropped 0.8% to 1,359.20. Investor risk aversion climbed, with the CBOE Volatility Index (VIX) rising 4.3% to 19.75.
Yesterday the gold price inched lower, by $4.02 to $1,638.87 per ounce, as the U.S. dollar advanced against the euro currency in the aftermath of elections in France and Greece. While the broader financial markets traded in a wide range following the election results, the price of gold was relatively stable. The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, settled lower by $0.39, or 0.2%, at $159.08 per share.
Silver dropped alongside the gold price on Monday, by $0.25, or 0.8%, to $30.10 per ounce. Other precious metals also finished in the red, with platinum futures sliding 0.4% to $1,529.60 per ounce and palladium retreating 0.9% to $646.45 per ounce. Among cyclical commodities, crude oil fell 0.6% to $97.95 per barrel while copper rose 1.0% to $3.76 per pound.
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The modest weakness in the price of gold helped pressure shares of most gold mining companies, as the Market Vectors Gold Miners ETF (GDX) finished down by $0.38, or 0.9%, at $43.67 per share. In doing so, the GDX ended at its lowest closing level since March 25, 2010. Notable decliners in the sector included Yamana Gold (AUY) and IAMGOLD (IAG) – which slipped by 2.0% to $13.84 and by 2.7% to $11.20 per share.
As for the broader markets, they should quite a bit of resiliency by rebounding from earlier losses. S&P 500 futures tumbled over 1% in overnight trading, but the Index bounced back to finish near unchanged at 1,369.58. The euro currency followed a similar path, as it slipped to as low as 1.2956 against the dollar but later climbed to the 1.3053 level.
Although the markets responded reasonably well to the anti-austerity message emanating from the French and Greek election results, several market strategists warned that they may only provide short-term relief. Peter Tchir of TF Market Advisors wrote in a note yesterday that he still believes the Eurozone “is on a path that leads to eventual dismantling” because of the severity of the sovereign debt crisis.
“Greece restructured debt, made different rules for different holders, and yet, the new bonds trade at 20% of par,” Tchir stated. “It’s like drinking non-alcoholic beer, why put up with the better taste with no useful result at the end. So these elections, while important are merely another step on the path the Eurozone has been headed for months, if not years.”
Tchir went on to say that “Germany in particular, but France and the Netherlands will have trouble justifying their contributions to the bail-out. They will be forced to turn to domestic issues to satisfy their electorate and this will become obvious to the market….Growth isn’t easy to achieve. Once ‘growth’ moves from a vague concept stage into something resembled a plan, investors will likely laugh at the attempts. It will be clear that most of the plans are unlikely of achieving long term growth above and beyond the cost of achieving it.”
Although Tchir did not specifically discuss the price of gold in his note, the longer-term implications of his outlook suggest a favorable backdrop for the yellow metal. Any growth measures implemented by policymakers will necessarily involve further currency debasement, a driving force behind the gold price’s ascent in recent years. Furthermore, rising economic and political uncertainty in Europe could fuel additional safe haven buying in gold, the one form of money that remains no government’s liability.
