Outlook for Gold “Hasn’t Been Dashed” by Its Recent Weakness

GOLD PRICE NEWS – The gold price inched higher during Monday’s holiday-shortened session despite modest strength in the U.S. dollar.  The spot price of gold advanced by $3.01, or 0.2%, to $1,658.88 per ounce while the U.S. Dollar Index rose 0.1% to 79.660 against a basket of foreign currencies.  The SPDR Gold Trust (GLD), the world’s most liquid gold price proxy, added $0.29 to $160.62 per share.

In contrast to the price of gold, silver dipped $0.12, or 0.4%, to $29.90 per ounce as commodities that are more cyclically-sensitive finished in the red.  Among those, platinum futures fell 0.3% to $1,534.50 per ounce while copper dropped by 0.5% to $3.55 per pound.

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Gold stocks mirrored the gold price this morning despite weakness in the broader equity markets.  The Market Vectors Gold Miners ETF (GDX) climbed a scant $0.13 to $44.85 per share but fared better than the S&P 500 Index, which retreated by 0.2% to 1,426.66.

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Several of the most widely-traded gold stocks, however, outperformed the GDX – including Barrick Gold (ABX), Goldcorp (GG), and Kinross Gold (KGC).  Shares of ABX jumped by 1.1% to $33.75, GG by 1.7% to $35.79, and KGC by 0.9% to $9.46.

Looking ahead, while the financial markets are usually quiet during the week of Christmas, the ongoing fiscal cliff saga in Washington, D.C. is likely to keep investors on edge as 2012 draws to a close.  While the markets initially rallied last week amid signs of progress on the negotiations, they ended on a sour note as President Obama and Speaker of the House Boehner were still unable to reach any form of consensus on tax and/or spending reforms.

Although the price of gold sold-off last week and currently sits near a four-month low, many precious metals strategists remain bullish on the longer-term outlook for the yellow metal. UBS’ Edel Tully wrote in a recent note to clients that with regard to the impact of the fiscal cliff, “A ‘grand bargain’ would not necessarily be negative for gold, given the yellow metal’s current positive correlation with risk and its lack of a safe-haven premium.”

Tully added that “A compromise lacking specifics would benefit gold insofar as it would disappoint those looking for long-run fiscal discipline. Better for gold would be a resolution that includes lifting the debt ceiling, which would increase the likelihood of ratings agency action.”

Lastly, the UBS strategist contended that “What is clear is that investors’ underlying positive sentiment towards gold hasn’t been dashed by its disappointing performance of recent weeks. Clients are still friendly towards gold, but as year-end approaches it makes sense that they are less keen to buy into weakness. Despite the recent price distractions, nothing has really changed. Gold requires more patience than it used to, but the macro backdrop remains encouraging.”