Gold Price Climbs to $1,600 on Talk of Further Easing from Fed, ECB

GOLD PRICE NEWS – The gold price recaptured the $1,600 per ounce level on Wednesday amid talk of further monetary easing in both the United States and Europe.  The spot price of gold climbed as much as $23.34, or 1.5%, to $1,606.32 earlier this morning, fueled in part by weakness in the U.S. dollar.  The greenback fell 0.3% against a basket of foreign currencies, while the euro advanced 0.5% to 1.2134 against the dollar.  The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold exchange-traded product, jumped $1.62 to $155.14 per share.

Silver rallied in conjunction with the price of gold, by as much as $0.44, or 1.6%, to $27.41 per ounce.  Among other precious metals, platinum futures rose 0.7% to $1,396.20 per ounce while palladium inched higher by 0.2% to $562.65 per ounce.  As for cyclical commodities, copper futures advanced 0.7% to $3.38 per pound while crude oil gave up its earlier gains, tumbling from an intra-day high of $89.16 to $87.23 per barrel.

Gold shares were boosted by strength in the gold price, as the Market Vectors Gold Miners ETF (GDX) climbed $0.72, or 1.8%, to $41.44 per share.  Notable GDX components in the black included Agnico-Eagle Mines (AEM), Barrick Gold (ABX), and Goldcorp (GG) – all of which report their second quarter earnings results this week.  AEM rose by 2.1% to $38.32, ABX by 1.4% to $33.57, and GG by 2.2% to $33.68 per share.

Yesterday afternoon the gold price was buoyed by reports that the Federal Reserve is “moving closer” to implementing further monetary stimulus to support the struggling U.S. economy.  The Fed is more seriously considering launching a third round of quantitative easing (QE3) – whose absence at last month’s Fed meeting helped send the price of gold to near multi-month lows.  However, in recent weeks, Chairman Ben Bernanke and his fellow central bankers have grown more concerned that the U.S. could be headed for a recession and therefore appear more likely to act in the near future.

Across the Atlantic, Ewald Nowotny – a member of the European Central Bank (ECB) Governing Council – stated in an interview with Bloomberg on Wednesday that “there are pro arguments” for granting the European Stability Mechanism (ESM) a banking license.  Such a measure would allow the ESM to exchange bonds it purchases for new cash from the ECB, thereby raising its capacity without needing further assistance from the European nations themselves.

However, according to Reuters, “ECB President Mario Draghi has poured cold water on the idea and legal problems could also prevent the central bank allowing the ESM to tap its liquidity operations, but Nowotny’s comments show the intensifying euro zone crisis is pushing policymakers to think about policy options they have previously shunned.”

Nonetheless, “The ECB comments that the ESM can eventually get a banking license and a pronounced euro rebound against the U.S. dollar drove gold prices to 2-1/2 week highs,” according to VTB Capital analyst Andrey Kryuchenkov.  Kryuchenkov went on to say that in the gold market, “Buying emerged on the break back above the 22 day moving average, with orders triggered past $1,590.”

While today’s rally in the price of gold has improved the outlook for the yellow metal, further strength is necessary to launch the yellow metal out of its recent trading range.  Tom Kendall, Head of Precious Metals Research at Credit Suisse, contended that “Four to six weeks will take us into an interesting time for the gold market, which we think should be more constructive.”

Kendall added that “Between now and then, physical demand is still pretty soft, positioning is disinterested across much of the investment community. Technically the price action is starting to look a bit more constructive… but that could fade as quickly as it appears to have been building.”

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