Gold Prices Steady Following Best Day in 3 Years

GOLD PRICE NEWS – The gold price held steady near $1,620 per ounce Monday morning amid a relatively quiet open for U.S. financial markets.  The price of gold is coming off of its best day in three years last Friday, when it surged 3.9% to a four-week high following the dismal U.S. non-farm payrolls report.  The yellow metal was also one of the few asset classes to post gains last week, as disappointing U.S. economic data combined with the latest barrage of sovereign debt worries in Europe to send investors into substantial risk aversion mode.

While the gold price held firm, silver dipped modestly, by 0.4% to $28.39 per ounce.  Last week silver inched higher by 0.1%, as the strength in precious metals was offset by broad-based liquidation in cyclical commodities.  Despite this morning’s fractional declines, on a year-to-date basis the prices of gold and silver remain higher by 3.6% and 2.4%, respectively.

Gold shares opened near the flatline on Monday alongside gold prices, with the Market Vectors Gold Miners ETF (GDX) oscillating between gains and losses near $46.58 per share.  The sector is also coming off of a particularly impressive stretch of gains, as the GDX jumped 4.2% last week and posted its first consecutive weekly gains since January.  This morning, notable gold producers in the black included AngloGold Ashanti (AU) and Harmony Gold (HMY), which advanced by 1.2% to $37.29 and by 0.4% to $10.37 per share.

As for the broader markets, the S&P 500 Index opened near unchanged at 1,278.29 but quickly turned lower, by 0.3% to 1,273.95.  The yield on the U.S. ten-year note, which last week dropped to an all-time low of 1.44%, climbed back to 1.51%.  The U.S. Dollar Index retreated 0.3% to 82.534, while the euro currency rose 0.6% to 1.2493 against the greenback.

Commenting on the increase in risk aversion in the markets, analysts at HSBC published a report noting that “Up until very recently, lower U.S. bond yields were also accompanied by lower gold prices… primarily because as the euro zone sovereign crisis intensified, capital moved into U.S. Treasuries and other perceived safe government bonds.  As the dollar rallied in reaction to capital inflows, gold prices, which are negatively correlated with the U.S. dollar, fell.”

However, HSBC went on to say that “Gold prices appear to have very recently broken away from this relationship and have turned higher despite further declines in U.S. Treasury yields, which have reached 60-year lows.  Low U.S. and German bond yields leave investors with few quality assets to choose from and may benefit gold.”

Looking ahead to this week, the U.S. economic calendar is relatively light but includes a few noteworthy reports.  The ISM Services Index – a key measure of economic activity – will be released Tuesday morning, followed by the Fed’s Beige Book on Wednesday afternoon.  Weekly jobless claims will then be announced on Thursday, and the report is likely to warrant more attention than usual in light of last week’s very disappointing jobs data.

In Europe, the European Central Bank will hold its monthly monetary policy meeting on Thursday.  Peter Tchir of TF Market Advisors, wrote in a note to clients that “The ECB meeting on June the 6th seems key to me.  Markets and economies are teetering across the globe.  More and more people are coming to the conclusion that a Greek Exit would be catastrophic. Central banks won’t want to act as though they are panicking, but neither will they want to wait much longer to act.  The regularly scheduled ECB meeting on the 6th is an ideal date for the first salvo to be fired.”