Gold Prices Hover at $1,600

GOLD PRICE NEWS – The gold price traded near unchanged Tuesday morning at $1,609 per ounce.  Gold prices have moved lower in recent weeks, punctuated by last week’s 3.7% decline.  The sell-off has been driven by heavy selling in the futures markets on the back of the perception that the U.S. economy is healing.  Investors are beginning to price in the end of the Federal Reserve’s quantitative easing program despite the fact that growth remains subdued.  Also helping to fuel selling and drive the price of gold lower is the news that high-profile institutional investors George Soros and Julian Robertson reduced their stake in SPDR Gold Trust (GLD) in the fourth quarter of 2012.

Silver has followed the price of gold lower, sliding 6.1% in the month of February alone.  Despite the recent weakness, there are tentative signs that physical demand is picking up near current levels.  According to TD Securities, “China has returned from its Lunar New Year celebrations with appetite for the precious metals with volumes on the Shanghai Gold Exchange touching new record levels.”  Despite this fact, TD did highlight the technical damage that is plaguing the price of gold, noting, “Gold’s 50-day moving average looks set to cross below the 200 day moving average, which has potential to precipitate a $150 move lower.  This occurred the last time the two moving averages crossed to the downside, in April of last year.  For now, gold support remains at $1600 and silver around $29.50.”

Investors and traders will now focus on Wednesday’s release of minutes from the Federal Reserve’s January 29-30 meeting.  Specifically, they will be looking for clues that the current $85 billion per month quantitative easing program will be terminated.  Any hint that the Fed’s ultra-easy monetary policy is set to end would likely lead to further selling in gold.  However, with much bad news prices into the gold market, the perception that the Fed will continue to keep the monetary spigots open could lead to selling in the U.S. dollar and a rebound in the price of gold.  Volume has been heavy in both gold and gold mining stocks with futures trading volume almost triple the average in the past one hundred days, adjusted for seasonality.

Gold mining stocks have been under heavy selling pressure in 2013.  Friday’s 3.5% drop in the Market Vectors Gold Miners ETF (GDX) comes on the back of weakness that goes all the back to 2011.  JP Morgan noted, “We continue to feel gold equities are in transition from pure growth and are seeking to be quality yield vehicles. Friday’s gold equity weakness probably represented concern that this transition will take a while. Gold equities were the favored way to participate in gold’s bull market that saw the metal outperform the S&P 500 and Dow by ~453% and ~435% respectively since 2000.”  The investment bank’s metals and mining research team sees this outperformance continuing: “Given the policies being followed by central banks to stimulate economic growth, it’s difficult to believe that gold should stop outperforming.”

The earnings calendar is heavy for the gold producers this week with AngloGold Ashanti (AU), Yamana Gold (AUY), and IAMGOLD (IAG) all reporting on Wednesday and industry bellwether Newmont Mining (NEM) set to release on Thursday.