The gold price climbed 2.4% Tuesday to $1,832 per ounce on the back of expectations that the weakening economy would prompt the Federal Reserve to initiate more monetary stimulus. After trading as low as $1,783 early Tuesday, the price of gold soared following a CNBC interview with Chicago Fed President Charles Evans. The dovish voting member of the Federal Open Market Committee told CNBC’s Steve Liesman, “the data has been soft” and noted that he “would favor more accommodation.”
Gold prices are recouping all of yesterday’s $41.75 loss. On Monday, the price of gold was unable to follow through on Friday’s 3.0% rally as investors shunned the yellow metal in favor of equities and cyclical commodities. The SPDR Gold Trust (GLD), the most liquid gold price proxy in the global equity markets, finished lower by $3.58 at $173.89 per share. The GLD advanced sharply this morning, gaining $4.42 to $178.31.
Gold equities followed gold higher after retreating in concert with the gold price during yesterday’s session. Notable decliners on Monday included AngloGold Ashanti (AU), Barrick Gold (ABX) and Yamana Gold (AUY), which fell 1.1%, 1.4%, and 1.6%, respectively. In contrast to the gold sector, the broader markets posted strong gains. The Dow Jones Industrial Average (DJIA) surged 254.71 points, or 2.3%, to 11,539.25.
Commenting on the recent correction in the gold price – which sent the yellow metal over 10% off its $1,913 per ounce record high – Bill Fleckenstein wrote in his weekly MSN column that “I don’t believe the gold bull market has ended…Having said all that, I would note that the gold market was due for a correction at some point, and it is now getting it. I say, let’s get it over with to clear out the hot money.”
Fleckenstein went on to discuss Ben Bernanke’s Jackson Hole speech and the implications it may have for the gold price. “The much-hyped Bernanke speech at Jackson Hole on Friday was essentially a nonevent. Basically, he said, ‘trust me’ while dangling a carrot by noting that the Fed still has tools available. He also said the September meeting would be expanded to two days so the Fed could think about how it might want to use those tools.”
As for the prospects of a third round of quantitative easing, Fleckenstein stated that “I don’t see how Bernanke is going to be able to hold off until Sept. 20 to start QE3, given how poor the economic fundamentals are here and how even more dreadful they are in Europe.”
Despite the fact that U.S. stock markets rallied following Bernanke’s speech and continued to push higher on Monday, Fleckenstein reiterated his preference for investments tied to the gold price – particularly gold stocks – versus the broader equity markets.
Although Fleckenstein did not attempt to predict the duration or severity of the ongoing gold price correction, he reiterated his longer-term positive stance on the gold sector. In particular, he highlighted three gold producers in which he holds positions – Agnico-Eagle Mines (AEM), Goldcorp (GG), and Newmont Mining (NEM).
Phil Streible, senior market strategist at MF Global, offered a similar take on the outlook for U.S. monetary policy. The Fed is “going to have a ton of data over the next two weeks coming into that meeting,” he wrote in a note to clients. “If we see unemployment take another turn, no pick up in housing, [the Fed will] probably come in and do something.”
While Streible did not discuss the outlook for gold prices, he described a scenario in which the price of gold tends to flourish. “I felt the most important thing [from Bernanke’s Jackson Hole speech] is that they changed the meeting from a one day to a two day,” he noted, “which tells you the situation with the economy is extremely serious.