Gold Price Retreats, Silver Follows

GOLD PRICE NEWS – The gold price retreated Wednesday morning, falling $6.70 to $1,753 per ounce.  Today’s small decline in the price of gold follows yesterday’s $24.10, or 1.8% surge amid a broad-based rally in precious metals.  In doing so, the spot gold price settled at its highest level in three months and extended its year-to-date gain to 12.5%.  The SPDR Gold Trust (GLD), a proxy for the price of gold and the sector’s largest ETF, backed off to $170.28 after climbing 2.2% yesterday.

S&P 500 stock futures fell 2.20 to 1357.90, sinking after weaker than expected economic data out of Europe.  Europe’s purchasing managers index fell to 49.7, well below the 50.5 consensus estimate according to a Bloomberg survey.

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Silver slipped $0.28 to $34.03 per ounce early Wednesday after jumping 2.0% on Tuesday.  The iShares Silver Trust (SLV), the world’s largest silver ETF, closed higher by $1.10, or 3.4%, at $33.38 per share.  With its advance, gold’s sister precious metal stretched its ascent in 2012 to 24.1% and reached its best level since mid-November.

Gold shares powered higher alongside the gold price, with the Market Vectors Gold Miners ETF (GDX) climbing $1.67, or 3.1%, to $55.82 per share.  On a year-to-date basis, the GDX has now gained 8.5%.  Among the large-cap gold miners, notable advancers on Tuesday included Kinross Gold (KGC), Newmont Mining (NEM), and Yamana Gold (AUY).  KGC rose by 3.7% to $11.36, NEM by 3.5% to $61.54, and AUY by 3.9% to $17.14 per share.

In contrast to the gold sector, the broader equity markets finished near unchanged.  Although the Dow Jones Industrial Average (DJIA) briefly surpassed the 13,000 level for the first time since May 2008, the benchmark index closed higher by just 0.1% at 12,965.69.  As equities pared their gains, the CBOE Volatility Index (VIX) rose 2.4% to 18.19.

Yesterday’s gold price rally was driven by macroeconomic news from across the globe.  In Asia, the People’s Bank of China (PBOC) lowered its reserve requirement ratio for the nation’s banks by 25 basis points.  The measure was implemented in an effort to stimulate lending and enhance liquidity in the Chinese financial system.

Commenting on the impact of the PBOC’s decision on the price of gold, analysts at VTB Capital stated that it was “good news for gold in the long run as bullion remains an attractive alternative to major currencies.”  The firm added that “Real interest rates are negative in major developed nations while developing nations are also playing their part in currency wars, fearing rapid appreciation of their domestic currencies against weak benchmarks.”

In Europe, reports that a deal was reached to provide Greece with its next round of bailout funds – totaling €130 billion – helped the euro currency advance modestly against the U.S. dollar.  The exchange rate rose from just under 1.32 prior to the announcement to as high as 1.3250.  In doing so, the decline in the dollar helped propel the gold price to its 1.9% gain.

In a related item, TD Securities’ Global Precious Metals team highlighted in a note to clients that the “Greek debt report prepared for the euro zone finance ministers [revealed] that Greece will need at least twice the current bailout amount and assumptions about future debt reduction are woefully optimistic.”  Looking ahead, the firm contended that “So far, the market has not paid much attention to this report, but something to bear in mind as gold pushes higher.”