Gold Price Firm, ECB Leaves Rates Unchanged

GOLD PRICE NEWS – The gold price climbed $13.87 to $1,656.19 per ounce Thursday morning after the European Central Bank and Bank of England each kept their benchmark interest rates at record lows.  The 0.8% gain in the spot price of gold was also fueled by weakness in the U.S. dollar, which fell 0.5% against a composite of the world’s leading currencies.  The euro rose 0.7% to near 1.28 against the dollar as well after better than expected sovereign debt auctions in Spain and Italy.

On Wednesday the gold price rose $10.30, or 0.6%, to a fresh four-week closing high of $1,642.32 per ounce.  The spot price of gold traded in a relatively tight range between $1,635 and $1,650 yesterday amid a relatively quiet day on Wall Street.  In afternoon trading the gold price showed a muted reaction to the latest Federal Reserve Beige Book, which noted considerable improvement in many areas of the U.S. economy.

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Silver advanced fractionally alongside the gold price, by 0.2% to $30.00 per ounce.  The modest moves higher in the price of gold and silver also came despite continued strength in the U.S. dollar, which climbed 0.5% against a basket of foreign currencies.  The euro fared particularly struggled against the dollar, as it tumbled to a 16-month low of 1.2661.

In contrast to the gold price, shares of most gold companies finished slightly lower on Wednesday.  The Market Vectors Gold Miners ETF (GDX) dipped 0.3% to $54.31 per share as it gave back a small portion of the prior two days of gains.  Royal Gold (RGLD) was one of the sector’s worst performers, as it dropped $2.29, or 3.2%, to $68.63 per share after announcing a 4.0 million common stock offering.  The Company stated that it intends to use the net proceeds of the offering to fund additional gold royalty interests and to pay down debt.  Other notable decliners included Agnico-Eagle Mines (AEM) and Gold Fields (GFI), which fell 1.4% and 0.9%, respectively.

On Wednesday investors got their latest look at the economic views of the Federal Reserve with the release of the Beige Book, a set of economic reports from each of the central bank’s 12 Districts.  The Fed noted that “Compared with prior summaries, the reports on balance suggest ongoing improvement in economic conditions in recent months, with most Districts highlighting more favorable conditions than identified in reports from the late spring through early fall.”

In terms of specific economic factors, the Beige Book pointed out that consumer spending “picked up in most Districts, reflecting significant gains in holiday retail sales compared with last year’s season.”  Demand for nonfinancial services – including professional and transportation services – strengthened further as well.  “Manufacturing activity generally continued to expand,” while “reports from financial institutions generally indicated a slight uptick in loan demand by businesses, along with improvements in overall credit quality.”

In spite of the largely positive economic picture represented by the Beige Book, the gold price maintained its gains as investors were able to digest the Fed’s report.  The resiliency of the price of gold indicated that although the economy may indeed be improving, the Ben Bernanke-led central bank is unlikely to alter its dovish stance on monetary policy anytime soon.

The need for continued accommodative monetary policies was also emphasized this week by two new voting members of the Federal Open Market Committee – John Williams and Sandra Pianalto, Presidents of the San Francisco and Cleveland Federal Reserve Banks, respectively.  In their first public speeches since becoming FOMC voting members, each argued that the challenging U.S. employment market is likely to take many more years to properly heal.

Williams asserted that “In this situation, it’s vital that the Fed use all the tools at its disposal to achieve its mandated employment and price-stability goals.”  So long as these “tools” continue to involve the use of near-zero interest rates and dovish rhetoric, the gold price is likely to remain well supported.