Gold Price Slides 1%, Falls Below $1,220
August 24th, 2010 - 8:53 am | by GoldAlert
Gold Prices
GOLD PRICE NEWS - The gold price slid $13.50 to $1,212 per ounce, falling alongside broader market stocks and commodities. COMEX gold futures came under heavy selling pressure Tuesday morning as investors and traders raised cash and reduced risk. Alongside the gold price, oil and copper declined 1.4% and 1.6%, respectively, as concerns over the prospect of double-dip recession intensified. The U.S. dollar strengthened to 1.259 against the euro, although fell to a 15-year low versus the Japanese yen. The yield on the 10-year U.S. Treasury fell to 2.45%, its lowest level since March of 2009, the nadir of the credit crisis.
Gold miners followed the gold price lower as the share prices of Barrick Gold (ABX) and Goldcorp (GG), two of the most widely-held gold producers, fell 2.5% and 2.2%, respectively, in pre-market trading. Notwithstanding today’s weakness, the gold price continues to outperform more cyclical investments as risk aversion rises among investors. Thus far in 2010 the gold price has risen 10.7%, compared to a 2.4% drop in the Dow Jones Industrial Average (DJIA) and a 7.3% decline in the Reuters/Jefferies CRB index, a basket of 19 commodities.
Despite today’s drop in the gold price, Martin Murenbeeld, an analyst with DundeeWealth Inc., remains bullish on the prospects for the yellow metal. In a recent note to clients, Murenbeeld examined the recent resurgence in the gold price and the bullish factors that should continue to drive the price of gold higher. According to Murenbeeld, one key factor accounting for the gold price’s rise in August was the announcement by the People’s Bank of China that it would take steps to further develop the gold market in light of growing consumer demand for the metal in the country. Measures would include expanding the number of commercial banks allowed to trade in gold, extending participation in the Chinese gold market to overseas interests, and instituting more favorable tax policy for gold transactions and gold-related investments.
Murenbeeld also noted that the threat of a “double-dip” recession in the U.S. is also bullish for the gold price, and in two distinct ways: the first is that the danger that GDP growth will turn negative may force the Treasury and Congress to come to terms with China over the value between the Chinese renminbi and the U.S. dollar. The trade balance situation is worsening again, observes Murenbeeld, and as the trade deficit increases it subtracts directly from GDP. One study cited by Murenbeeld estimated that a 10% rise in the renminbi could improve the U.S. trade balance by as much as $63 billion. The resulting devaluation for the dollar would be “quite positive” for the gold price, said Murenbeeld - but, the U.S. must be willing to engage China in what could be an exchange of countervailing duties on imports. “This could get nasty,” notes Murenbeeld, “but so would a rising US deficit get nasty - and the latter has no positive US employment impact.”
The other way the threat of a double-dip recession is bullish for gold is the Federal Reserve’s policy response to the threat. “We saw already on August 10 that the Fed was not prepared to collapse its balance sheet just yet,” says Murenbeeld. “But without any contribution to growth from the US foreign balance, it will take significant further monetary easing to keep the US GDP from turning negative.”
From Murenbeeld’s perspective, the macroeconomic backdrop for the gold price is bullish whether or not policymakers develop the backbone to confront China over its currency’s valuation. A renminbi revaluation would spur the gold price in U.S. dollar terms, and possibly reduce the need for quantitative easing. If recent history is any indication though, the U.S. will avoid a messy showdown with China, leaving fiscal and monetary stimulus as the only options available to keep GDP in positive territory. For the gold price, it could be a win-win outcome.
August 24th, 2010 - 8:53 am | by GoldAlert
Gold Prices
GOLD PRICE NEWS - The gold price slid $13.50 to $1,212 per ounce, falling alongside broader market stocks and commodities. COMEX gold futures came under heavy selling pressure Tuesday morning as investors and traders raised cash and reduced risk. Alongside the gold price, oil and copper declined 1.4% and 1.6%, respectively, as concerns over the prospect of double-dip recession intensified. The U.S. dollar strengthened to 1.259 against the euro, although fell to a 15-year low versus the Japanese yen. The yield on the 10-year U.S. Treasury fell to 2.45%, its lowest level since March of 2009, the nadir of the credit crisis.
Gold miners followed the gold price lower as the share prices of Barrick Gold (ABX) and Goldcorp (GG), two of the most widely-held gold producers, fell 2.5% and 2.2%, respectively, in pre-market trading. Notwithstanding today’s weakness, the gold price continues to outperform more cyclical investments as risk aversion rises among investors. Thus far in 2010 the gold price has risen 10.7%, compared to a 2.4% drop in the Dow Jones Industrial Average (DJIA) and a 7.3% decline in the Reuters/Jefferies CRB index, a basket of 19 commodities.
Despite today’s drop in the gold price, Martin Murenbeeld, an analyst with DundeeWealth Inc., remains bullish on the prospects for the yellow metal. In a recent note to clients, Murenbeeld examined the recent resurgence in the gold price and the bullish factors that should continue to drive the price of gold higher. According to Murenbeeld, one key factor accounting for the gold price’s rise in August was the announcement by the People’s Bank of China that it would take steps to further develop the gold market in light of growing consumer demand for the metal in the country. Measures would include expanding the number of commercial banks allowed to trade in gold, extending participation in the Chinese gold market to overseas interests, and instituting more favorable tax policy for gold transactions and gold-related investments.
Murenbeeld also noted that the threat of a “double-dip” recession in the U.S. is also bullish for the gold price, and in two distinct ways: the first is that the danger that GDP growth will turn negative may force the Treasury and Congress to come to terms with China over the value between the Chinese renminbi and the U.S. dollar. The trade balance situation is worsening again, observes Murenbeeld, and as the trade deficit increases it subtracts directly from GDP. One study cited by Murenbeeld estimated that a 10% rise in the renminbi could improve the U.S. trade balance by as much as $63 billion. The resulting devaluation for the dollar would be “quite positive” for the gold price, said Murenbeeld - but, the U.S. must be willing to engage China in what could be an exchange of countervailing duties on imports. “This could get nasty,” notes Murenbeeld, “but so would a rising US deficit get nasty - and the latter has no positive US employment impact.”
The other way the threat of a double-dip recession is bullish for gold is the Federal Reserve’s policy response to the threat. “We saw already on August 10 that the Fed was not prepared to collapse its balance sheet just yet,” says Murenbeeld. “But without any contribution to growth from the US foreign balance, it will take significant further monetary easing to keep the US GDP from turning negative.”
From Murenbeeld’s perspective, the macroeconomic backdrop for the gold price is bullish whether or not policymakers develop the backbone to confront China over its currency’s valuation. A renminbi revaluation would spur the gold price in U.S. dollar terms, and possibly reduce the need for quantitative easing. If recent history is any indication though, the U.S. will avoid a messy showdown with China, leaving fiscal and monetary stimulus as the only options available to keep GDP in positive territory. For the gold price, it could be a win-win outcome.