Gold Price Climbs Back Toward $1,770

GOLD PRICE NEWS – The ascent in the gold price raged on Wednesday morning, rising $25.30 to $1,766 per ounce. The price of gold climbed alongside the U.S. dollar as investor risk aversion re-emerged in global equity markets. Stock prices moved lower with S&P 500 stock futures falling 17.50 to 1154.20. Commodities bucked the weakness in the stock market as 16 of the 19 components of the Reuters-Jefferies CRB index posted gains. WTI crude oil advanced 3.5% to $82.07 per barrel while silver’s sister precious metal, silver, appreciated 2.6% to $38.55 per ounce.

In early morning trading on Tuesday, the gold price surged to another new record high of $1,780 per ounce as European and Asian markets opened with substantial losses. However, the price of gold subsequently tumbled to $1,725 as equity markets surged higher. Gold prices traded in a wide range yesterday before settling with a gain of $19.95 at $1,739.49 per ounce. The Dow Jones Industrial Average (DJIA) experienced its own rollercoaster ride, rising over 200 points, then falling over 400 points and finally soaring over 600 points into the close. The Dow ultimately finished higher by 429.92 points, or 4.0%, at 11,239.77, marking its best day since March 23, 2009.

Gold shares climbed alongside the broader markets, as the AMEX Gold Bugs Index (HUI) finished higher by 4.5% at 549.85. Notable advancers included Yamana Gold (AUY) and Gold Fields (GFI), which surged 5.1% and 6.0%, respectively. With its gain, the HUI rebounded into positive territory this month, by 1.1%. However, year-to-date the gold stocks composite remains lower by 4.1%. gold mining stocks gained early Wednesday morning despite weakness in broader equity markets.

Volatility in the gold price intensified following the conclusion of yesterday’s Federal Open Market Committee (FOMC). Chairman Bernanke and the Federal Reserve affirmed their dovish stance but not did announce a third round of quantitative easing (QE3). While Bernanke did not conduct a post-FOMC press conference, the Fed statement included several noteworthy changes relative to the prior two meetings.

The Fed statement began by noting that since June, “economic growth…has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up.”

Looking ahead, the Fed said that it expects “a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually…Moreover, downside risks to the economic outlook have increased.”

In light of its more cautious economic outlook, the Fed committed to leaving interest rates at “exceptionally low levels” through at least the middle of 2013 – a significant change from the vague “extended period” language used over the past two years. The U.S. central bank also pledged to maintain the size of its balance sheet by reinvesting principal payments from its securities holdings.

Of note was the fact that three FOMC members – Richard Fisher, Narayana Kocherlatkota, and Charles Plosser – dissented from the decision to change “extended period” to mid-2013. This marked the largest number of dissenting votes since 1992.

The only reference to additional accommodative policy measures came when the Fed stated that it will “continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.”

Although the gold price pared its gains following the FOMC announcement, it remained firmly in positive territory and close to its all-time record high. The price of gold was supported by the fact that the Bernanke-led Fed reiterated its commitment to fighting deflation and left the door open for further easing measures.

Commenting on the Fed statement, analysts at Goldman Sachs wrote in a note to clients that “The committee adopted an even easier policy stance than expected…Although some form of strengthening of the guidance language was expected and the new guidance remains conditional on the economic outlook, we see this step as a dovish surprise.”

Goldman went on to provide analysis that augurs well for higher gold prices. “The committee effectively signaled an easing bias saying…In our view, this leaves open the possibility of further asset purchases (‘QE3′) should the economic outlook deteriorate further from here.”

Leave a Reply