Gold Price Holds Firm, Posts 18% Gain in 2011

GOLD PRICE NEWS – The gold price, at $1,684 per ounce, hovered near unchanged Monday morning.  After trading as high as $1,695 overnight, the price of gold retreated after German Chancellor Angela Merkel’s chief spokesman, Steffen Seibert, warned that a quick ending to the sovereign debt crisis in Europe was not forthcoming.  S&P 500 stock futures turned down on the news while cyclically-sensitive commodities, such as oil and copper, pared their gains.

Last week the gold price rallied $42.81, or 2.6%, rallying alongside the broader commodities complex on the back of weakness in the U.S. dollar.  The spot price of gold briefly mounted an attack on the $1,700 per ounce level, but pared its gains amid profit-taking in precious metals.   Nevertheless, the gold price advanced for consecutive weeks for the first time since mid-August, extending its year-to-date gain to 18.3%.

Gold’s sister precious metal, silver, advanced higher Monday morning.  At $32.35 per ounce, the silver price has gained 24% off its September low print of $26.07 per ounce.  With today’s climb, the spot price of silver has appreciated 4.2% in 2011.

Gold and silver shares were mixed this morning after last week’s bounce.  The Philadelphia Gold & Silver Index (XAU) jumped 5.5% to 197.77 to snap a four-week losing skid.  Notable advancers last week included Yamana Gold (AUY) and Kinross Gold (KGC), which added 8.3% and 6.9%, respectively, over the five-day stretch.

Precious metals equities were also the beneficiary of substantial gains in U.S. equity markets.  The S&P 500 Index surged 6.0% to 1,224.58 – marking its best week since July 2009.  The advance was accompanied by a significant decline in risk aversion, evidenced by the 22% plunge in the CBOE Volatility Index (VIX).  At 28.24, the VIX is at its lowest level since August 3.

The rally in the price of gold and broader markets was fueled by a sell-off in the U.S. dollar, particularly against the euro.  The euro climbed from near 1.36 to 1.3870 against the dollar last week amid reports that European policymakers are considering an expansion of bailout funds to help recapitalize the euro zone banking system.  Speculation that the International Monetary Fund (IMF) may play a larger role in the efforts also arose in recent days.  Any increase in the level of financial assistance would inherently involve additional money printing, and thus provide a more favorable environment for the yellow metal.

Despite its advance, the spot price of gold remains 12.6% below its $1,921 all-time high print, recorded on September 6, 2011.  Commenting on the yellow metal’s correction over the past month, Tony Hall of Duet Commodities Fund stated in a recent Bloomberg interview that “the decline is more of a healthy retracement” than a change in the long-term trend.  ”I do think the trend is still in place,” Hall asserted, “and in the next three to six months we’re going to reach the $2,000 mark.”

Hall, whose over 30% gain in 2011 has made the Duet Commodities Fund one of the top performing hedge funds this year, went on to say that “Gold is quite a chameleon in terms of what it’s used for. If things are going well then it can be an inflation hedge or a store of value. If we do have a crisis, it can be a safe haven.”

Looking ahead, there are a host of economic catalysts likely to impact the gold price in the coming week.  The U.S. economic calendar is particularly heavy – with reports on inflation, manufacturing, housing starts, and leading indicators all set to be released.  The Fed’s Beige Book will also be published, along with scheduled speeches from Fed Chairman Ben Bernanke and a host of regional Fed Presidents.  Investors will be paying close attention for clues regarding the future course of U.S. monetary policy – which has continued to be a driving force behind movements in the price of gold and broader financial markets.

Source; http://www.goldalert.com/2011/10/gold-price-holds-firm-posts-18-gain-in-2011/