Gold Prices Enter Best Month on a High Note

GOLD PRICE NEWS – The gold price held firm on Monday, rallying to near a six-month high of $1,701.47 per ounce to begin a busy week for the financial markets.  The spot price of gold is coming off of a 4.8% advance in August – its best month since January – amid rising expectations of further monetary stimulus in both the U.S. and Europe.  Furthermore, September has historically been the best month for the gold price, during which time it has averaged a gain of over 2% during the past 50 years.

Gold prices have also been supported by a slowdown in global economic growth, evident most recently by yesterday’s disappointing report on manufacturing activity in China.  The Chinese PMI report for August came in at 49.2, below the 50 level that signals expansion, for the first time since last November.

Silver stabilized alongside the price of gold on Monday, after climbing to $32.36 per ounce in overnight trading – its best level since April 13th.  Gold’s sister precious metal is also coming off of a strong performance in August, when it surged 13.7% for its best month since January as well.  On a year-to-date basis, the price of gold and silver are now up by 8.8% and 16.7%, respectively.

As for gold shares, the Market Vectors Gold Miners ETF (GDX) hovered on Monday near its highest level since June 20th.  Moreover, gold stocks substantially outperformed the gold price last month, as the GDX climbed 12.1% in August – its best such stretch since April of 2010.  However, the gold ETF remains down by 6.4% in 2012.

This morning, the gold sector was mixed, with shares of Barrick Gold (ABX) down by 0.5% at $38.33 while Eldorado Gold (EGO) rose 0.8% to $13.39.  Gold miners did fare better than the broader equity markets, as the S&P 500 Index slipped 0.6% to 1,398.52.

Looking ahead for the gold price, the most significant catalyst this week is likely to be the European Central Bank (ECB) monthly meeting held on Thursday.  Investors are eagerly waiting to see if ECB President Mario Draghi will follow up on recent comments that he will do “whatever it takes” to save the euro.  Speculation that the ECB will announce a bond-buying program of Spanish and/or Italian debt has helped lift financial markets over the past month, although many euro zone officials – particularly in Germany – remain vehemently opposed to such measures.

Citigroup economist Guillaume Menuet wrote in a note to clients that “I’m not sure the ECB is ready to publish the nitty-gritty and the procedures of interventions, because no country has asked (for financial assistance) and because there are still some important dates in the month that require prior approval.”

In the U.S., the economic calendar contains several critical reports, highlighted by Friday’s monthly employment report.  The consensus estimate among economists is for non-farm payrolls to come in at 140,000 and the unemployment rate to dip from 8.3% last month to 8.2%.  However, expectations for improvement in the labor market remained muted after Federal Reserve Chairman Ben Bernanke noted last week that the U.S. economy continues to face significant headwinds.

From a technical perspective, “you do need to see definite action from the ECB and a substantially lower dollar” for the gold price to generate a sustained rally past $1,700 per ounce – according to VTB Capital analyst Andrey Kryuchenkov.

“The fact that the other precious metals are rallying as well and it’s not just gold, shows it is macro sentiment that is driving the market at the moment,” Kryuchenkov added.  “All that promise needs to turn into concrete action. And for gold in the long run, it needs any sort of liquidity boost, of balance sheet expansion and for (bond) yields to stay low.”