Gold Price Surges to Fresh Record as Recession Fears Escalate

GOLD PRICE NEWS – The gold price surged to fresh all-time highs Thursday as risk aversion gripped financial markets across the globe.  The spot price of gold rallied as much as $31.55 to $1,822.60 per ounce, eclipsing last week’s record high of $1,815.00.  COMEX gold futures, per the December contract, reached a new high of $1,824.20 per ounce as of 9:15am ET.  Silver climbed alongside the gold price, by $0.27, or 0.7%, to $40.59 per ounce.

Strength in the gold price was fueled by rising worries over the state of the euro zone and U.S. economies.  Equity markets in Europe tumbled, with financial shares posting significant losses.  U.S. markets looked to open considerably lower, with futures on the Dow Jones Industrial Average plunging 223.00 points, or 2.0%, to 11,158.00.

Gold equities were set to open modestly higher in concert with the gold price, as the Market Vectors Gold Miners ETF (GDX) rose 0.6% to $61.10 per share in U.S. pre-market activity.  Shares of gold companies looked to build on gains from yesterday, when the GDX advanced 0.8%.  Barrick Gold (ABX) and Goldcorp (GG), the world’s two largest gold companies, rose 0.5% and 1.0%, respectively.

The gold price added to its gains this morning after weekly U.S. jobless claims came in at 408,000, above the consensus estimate among economists of 400,000.  The prior week was revised from 395,000 to 399,000, while continuing claims rose to 3.702 million from 3.695 million.  The disappointing employment data, coupled with a wave of worrisome reports in recent weeks, reinforced the view that the U.S. economy may be nearing a new recession.

Providing further support for the gold price yesterday, and raising further concerns over the outlook for the U.S. economy, was a report from Standard & Poor’s (S&P) entitled U.S. Economic Forecast: Still Treading Water.  There, S&P lowered its full-year 2011 U.S. GDP forecast to 1.7% from 2.4%, and cut its 2012 and 2013 estimates based on “a more drawn-out recovery.”  In addition, the firm wrote that the “depressing results support our expectations that the U.S. unemployment rate will remain above 8.5% through 2013 and not reach the estimated 5.5% natural rate for another 10 years.”

S&P went on to address those economists asserting that the recent economic slowdown is transitory and a rebound will develop in the second half of 2011.  “Continued weak growth after sharply downward GDP revisions has made the ‘temporary argument’ a less plausible explanation for the slew of bad news for the first half of the year.  At least the GDP revisions make the persistently high unemployment rate make more sense. But the revised data also indicate a much weaker outlook than we previously expected.”

The ratings agency later cited a study by McKinsey demonstrating that the impact of a financial crisis is historically felt by an economy for far longer than just a few years.  “Financial crises are often followed by prolonged recessions, which is followed by a long bout of sub-par growth…recoveries from financial crises are typically a hard climb. The economic growth will be slower than normally expected and won’t be felt as a recovery by most.”

The economic environment described by S&P is clearly quite supportive of higher gold prices.  If the U.S. economy continues to suffer from recession fears and/or sub-par growth, calls will increase for further stimulus from the Federal Reserve and federal government.  Amid such a backdrop, the price of gold is likely to continue its record-setting ascent.