Gold Price Hits New Record as European Crisis Intensifies

GOLD PRICE NEWS – The gold price soared to a new series of record highs Friday morning as sovereign debt and recession worries continue to pressure Wall Street.  The spot price of gold climbed as much as $54.98 to $1,878.90, a new all-time high, before paring its gains prior to the open of U.S. equity markets.  The SPDR Gold Trust (GLD), the most liquid gold price proxy in the equity markets, surged $2.58 to $180.30 per share in pre-market activity.  COMEX gold futures, per the December contract, hit a new record of $1,881.40 per ounce earlier this morning.

Silver rallied significantly in concert with the gold price, by $1.39, or 3.4%, to $42.02 per ounce.  COMEX silver futures hit $42.64 earlier this morning, their highest level since May 3rd of this year.  With today’s gains, the prices of gold and silver extended their year-to-date gains to 32.2% and 35.6%, respectively.

Gold and silver shares looked up open sharply higher alongside precious metals, as the Market Vectors Gold Miners ETF (GDX) jumped 1.5% to $60.65 per share in pre-market activity.  Barrick Gold (ABX), the world’s largest precious metals company, added 1.1% to $50.41 per share.  Newmont Mining (NEM) and Goldcorp (GG), the world’s second and third largest gold companies, climbed 1.5% and 1.7%, respectively.

A primary catalyst for strength in the gold price has been escalating concerns over the European sovereign debt and banking crises.  Yesterday, the Wall Street Journal reported that U.S. regulators were elevating their scrutiny of European banks’ liquidity, while a Swedish regulatory agency warned banks that they should do take additional measures to prepare for a funding crisis. Data from the European Central Bank on Wednesday also revealed that an unnamed financial institution borrowed $500 million from a dollar facility that had not been utilized for several months.

These developments have led to widespread selling in European markets.  However, the euro currency has held up relatively well, at least against the U.S. dollar.  On Friday morning, the euro climbed 0.5% to 1.4409 against the dollar.

In the U.S., disappointing economic data has continued to roll in, sparking fears of a renewed recession.  Yesterday, weekly jobless claims came in modestly above expectations, at 408,000 versus the 400,000 consensus estimate among economists.  Existing homes sales were reported at 4.67 million, below the 4.87 million expected.  While those two data points were disappointing, they were dwarfed by the Philadelphia Fed Index, a key gauge of manufacturing activity.  At negative 30.7, the Index missed the 1.0 consensus estimate among economists by a huge margin.

With no U.S. economic reports on schedule for today, the gold price and financial markets in general are likely to be swayed by the developments in Europe.  Matt Spick, an analyst at Deutsche Bank, wrote in a note to clients that although the probability of a 2008-style financial crisis are “reasonably remote” in Europe, a “slower moving, but still toxic, funding crisis” could emerge.

Given the fact that markets generally tend to shoot first and ask questions later, the few safe haven areas – namely the gold price and U.S. Treasuries – are likely to benefit if global economic and financial concerns continue to escalate.