Gold Price Hits $1,780, Awaits the Fed

GOLD PRICE NEWS – The gold price touched a new all-time high of $1,780 per ounce early Tuesday morning. The price of gold, currently trading at $1,745 per ounce, gained as much as $117 over the past two days alone. S&P’s downgrade of the United States, combined with the flare-up of the sovereign debt crisis in Europe, has lit a fire under the yellow metal. Confidence in the integrity of paper currencies has eroded, leading investors to bid up gold prices to record highs.

The Federal Open Market Committee (FOMC) meets today and will deliver its policy statement at 2:15pm eastern time. With global markets experiencing severe turbulence in recent days, many are looking to Fed Chairman Ben Bernanke to stem the decline in global stock markets by announcing a new round of quantitative easing. Gold prices have been bolstered by the Fed’s proclivity to print money in order to spark an economic recovery. News over the weekend that the European Central Bank (ECB) was set to begin purchasing Italian and Spanish bonds helped fuel the gold price rally.

Today’s surge in the gold price follows yesterday’s $55.00 per ounce spike. The spot price of gold surpassed $1,700 per ounce for the first time ever on its way to new record highs. Goldman Sachs called for gold to rise to $1,860 per ounce within 12 months, while JP Morgan predicted that gold prices could touch $2,500 per ounce this year.

Silver fell over 2% to $37.95 per ounce early this morning despite the rally in the price of gold. As for precious metals equities traded higher Tuesday morning, Gold Fields (GFI), Kinross Gold (KGC), and Newmont Mining (NEM), which dropped 1.0%, 2.2%, and 0.5%, respectively, during yesterday’s trading session, all moved to the upside.

Premier Gold Reports that Goldstone Shareholders Approve Acquisition

Premier Gold Mines (PG.TSX) announced that the acquisition of Goldstone Resources (GRC.TSX) was approved at the annual and special meeting of Goldstone shareholders held today. The Arrangement will result in Premier acquiring all of the issued and outstanding shares of Goldstone. Under the terms of the Arrangement, each Goldstone shareholder will receive 0.16 of one Premier common share and a nominal cash payment of $0.0001 for each Goldstone share held.

Goldstone is seeking a final order of the Ontario Superior Court of Justice (Commercial List), which is expected to be granted on August 12, 2011. Once the final order is received, the Arrangement is expected to be completed on or about August 16, 2011.

Gold Stocks (GDX) Rally as Gold Hits New High

GOLD STOCKS NEWS – Gold stocks rallied Monday as the Market Vectors Gold Miners ETF (GDX) climbed 0.9% to $55.93 per share. Strength in gold stocks and the GDX came as gold futures reached a new all-time record high of $1,718.20 per ounce after S&P downgraded the U.S. credit rating from AAA to AA+. The S&P/TSX Global Gold Index, Canada’s leading basket of gold stocks, added 1.2% alongside the GDX.

Despite today’s advance in gold stocks, the GDX has fallen noticeably in recent weeks in concert with the broader equity markets. Commenting on weakness in gold stocks, CIBC analyst Barry Cooper wrote in a note to clients that “Gold stocks will trade as stocks first and as gold investments second. Evidence of this occurred on Friday as markets were down and gold was initially up yet the gold companies were following the market not the gold price. While the entire group moved somewhat in unison, this is not always the case.”

Cooper went on to say that “The probability of a gold stock performing well in this environment may be related to its market capitalization. In 2008 when gold hit its low on November 27th, the S&P continued to slide for three more months until March 9, 2009. During that period, gold bullion rose 13% and so did the gold equities. The lack of beta however can be correlated with the market capitalization of companies as in general the bigger they were the worse their performance.”

“What’s interesting is political risk didn’t seem to hold back some of the winners in terms of performance during this rally, reinforcing our view that the market is willing to pay for growth,” Cooper continued. “So who has the near term growth this time around? Eldorado (EGO), Centerra (CG.TSX), Alamos (AGI.TSX), Osisko (OSK.TSX) (near term start up risk though), Kirkland Lake Gold (KGI.TSX), and even Goldcorp (GG).”

In morning trading, GDX components EGO and GG outperformed most gold stocks, rising 3.1% and 1.3%, respectively. As for the Canadian-listed gold stocks highlighted by CIBC, AGI.TSX advanced 5.0%, CG.TSX dropped 2.1%, KGI.TSX added 0.7%, and OSK.TSX climbed 0.5%.

Other notable gold stocks moving higher on Monday included GDX components Agnico-Eagle Mines (AEM), Newmont Mining (NEM), and Royal Gold (RGLD). In morning trading, AEM, NEM, and RGLD advanced 1.4%, 2.3%, and 1.2%, respectively.