Gold Price Rebounds, is a “Turnaround” Ahead?
By jturbin | May 16, 2012 8:23 PM IST
GOLD PRICE NEWS – The gold price bounced back from overnight losses on Wednesday alongside European and U.S. financial markets. The spot price of gold fell as much as $16.38 to $1,526.50 per ounce in overnight trading – its lowest level since December 29, 2011 – before rebounding into positive territory by $6.67 at $1,549.55. The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, advanced $0.89 to $150.63 per share.
Silver recouped its earlier losses in conjunction with the price of gold and other precious metals. Near the opening of European markets, silver was down by $0.51 at $27.18 – its worst level as well since the end of 2011 – but later rose back to trade higher by $0.13, or 0.5%, at $27.82 per ounce. Platinum futures climbed from an overnight low of $1,422.60 to $1,440 per ounce, while palladium jumped from $587.20 to $597.40 per ounce.
As the gold price turned higher, gold shares did as well. The Market Vectors Gold Miners ETF (GDX) opened modestly higher and extended its gains in mid-morning trading, by $1.32, or 3.4%, to $40.66 per share. Today’s strength in gold shares was a welcome respite for the GDX, which yesterday fell to $39.25 – its lowest level since September 2, 2009. Barrick Gold (ABX), the sector’s largest company, rallied $1.02, or 2.9%, to $36.01 per share. Newmont Mining (NEM), the only gold stock included in the S&P 500 Index, rose $1.12, or 2.6%, to $44.51 per share.
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Equity markets in England, Germany, and France all opened sharply lower on Wednesday, but later staged a considerable comeback in concert with the euro currency. The euro slid to 1.2682 against the U.S. dollar – its worst print since January 17th of this year – but subsequently climbed back to 1.2747. U.S. equity markets opened near unchanged but quickly turned higher. The Dow Jones Industrial Average (DJIA) added 0.5% to 12,698.11 while the S&P 500 Index rose 0.6% to 1,338.89. Risk aversion declined modestly as well, with the CBOE Volatility Index (VIX) down by 4.1% at 21.07 this morning.
The markets extended their gains after two better than expected U.S. economic reports. Housing starts rose 2.6% in April to an annual rate of 717,000, above the 690,000 median estimate among economists. Industrial production increased 1.1% last month, beating the 0.6% consensus forecast.
Barry Knapp, head of U.S. equity strategy at Barclays, stated in a Bloomberg interview that “The U.S. economic data is consistent with the bottom not falling out of the equity market. Yet the situation in Europe is extremely precarious. Everybody wants Greece to stay in the euro, but does Greece want to stay? More needs to be done. You can’t have a lot of confidence that assets will stabilize.”
Commenting on the outlook for the gold price, Societe Generale analyst Robin Bhar contended that “It’s difficult to see a turnaround just yet. There will be one, but I don’t think this is the time, just when we are in the eye of the storm…Clearly, with people staring into the abyss, it could (decline) $50 or even $100 lower as it washes out. That is the unpredictability of it all and as equities fall, as the Greeks take money out of the banks and the banking sector collapses, I suppose you’d have to be wary of further price falls just to cover for losses in other markets.”