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.

Gold Price Blasts to Record, Hits $1,715

GOLD PRICES NEWS – The gold price soared to a new all-time high, touching $1,715.75 per ounce Monday morning. The price of gold advanced on the back of the United States being stripped of its AAA rating by S&P. The debt downgrade led to worries over the longer-term sustainability of the U.S. dollar as a reserve currency, prompting a flight to gold. Helping to amplify the trepidation among investors were fresh worries over contagion in Europe as Italian and Spanish debt came under heavy selling pressure.

In contrast to higher gold prices, stocks sank across the globe. S&P 500 stock futures fell 24.10 to 1173.70, following equity markets in Europe and Asia to the downside. WTI crude oil futures fell 4.3% to $83.15 per barrel on fresh worries over a double-dip recession in the United States. The euro-denominated gold price traded up to 1,200 for the first time ever after the European Central Bank hinted late Sunday it may be prepared to purchase the sovereign debt of Italy and Spain.

The gold price extended its year-to-date gain to 19.7%, surging over $200 in the past five weeks alone. The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, advanced to $165.05 early this morning. Silver prices advanced higher alongside gold Monday morning, rallying $1.19 to $39.54 per ounce. Gold’s sister precious metal is now higher by 27.9% in 2011.

Strength in the gold price has unable to lift precious metals equities, however, as investors dump equities of any and all ilk. The AMEX Gold Bugs Index (HUI), a composite of the world’s largest gold companies, slid 3.0% on Friday – extending its loss in 2011 to 8.1%. Barrick Gold (ABX) and Goldcorp (GG), the sector’s two largest components, dropped 3.7% and 3.2%, respectively. Newmont Mining (NEM), the largest U.S. based gold producer and the only gold stock included in the S&P 500 Index, retreated 2.2%. Despite the weakness in broader market equities this morning, gold mining stocks traded in positive territory.

S&P’s downgrade and the debt ceiling debacle in Washington have certainly contributed to the record-setting run in the gold price. However, this is only half the story. A series of disappointing U.S. economic data has led to concerns over a new recession and to prognostications that the Federal Reserve will hold interest rates near zero as far as the eye can see.

Late last week, Jan Hatzius, chief U.S. economist at Goldman Sachs, lowered the firm’s GDP estimates in 2011 to 1.7% from 1.8% and to 2.1% from 3.0% in 2012. Hatzius also forecasted that the unemployment rate will rise to 9.25% by the end of 2012, and said there is a one-in-three likelihood of a renewed U.S. recession.

In a note to clients, the Goldman economist wrote that “Even our new forecast is subject to meaningful downside risk. We now see a one-in-three risk of renewed recession, mostly concentrated in the next 6-9 months. There are three specific issues that concern us. First, a worsening of the European financial crisis, and a failure of European policymakers to respond adequately, could lead to a further tightening of financial conditions and credit availability, which would worsen the economic outlook globally. Second, our forecast assumes that the payroll tax cut—currently scheduled to expire at the end of 2011—is extended for another year, but if that failed to happen the fiscal drag in early 2012 would increase significantly. Third, increases in the US unemployment rate have historically had a tendency to feed on themselves, and this could happen again.”

While Hatzius did not specifically discuss the gold price, the implications of the firm’s revised economic outlook are supportive of higher gold prices. Although the firm did not suggest that a third round of quantitative easing is a certainty, it is clear that the odds of an eventual restart of the Fed’s quantitative easing campaign have increased substantially. Furthermore, Goldman’s forecast echoes recent predictions from a host of noted investors – including Marc Faber, Jim Rogers, Eric Sprott, and many others – that Chairman Bernanke and the Federal Reserve are prepared to fire up the printing presses for as long as necessary to combat the deflationary headwinds facing the U.S. economy. As long as deflation is enemy number one of central bankers, the gold price is likely to remain well supported.

Gold Soars, ECB Turns Attention to Italy, Spain

Gold spiked to a new record high of $1,715.75 per ounce, up a huge $52.00 – or 3% – as markets reacted to S&P stripping the United States of its AAA rating.

The turbulence in global markets led the European Central Bank (ECB) to convene an emergency meeting late yesterday. Up to this point, the ECB has limited its bond purchases to Irish and Portuguese securities. However, late Sunday – in a statement issued in the name of the ECB – the central bank indicated it was prepared to acquire Spanish and Italian debt. With money printing in full swing across the globe, investors are flocking to gold.

Despite numerous bailouts and rescue packages, the sovereign debt crisis in Europe continues to escalate. Bond yields on Italian and Spanish government debt climbed to their highest levels since the euro was adopted in 1999. Investors have fled to gold as a safe haven, driving the euro-denominated gold price to all-time highs.

S&P stock futures spiraled lower, sinking 29.80 to 1168 early Monday morning.