Gold Price Climbs as U.S. Economic Outlook Dims

GOLD PRICE NEWS – The gold price advanced $8.27, or 0.5%, to $1,619.44 per ounce on Wednesday after the latest set of weak U.S. economic data.  The price of gold stabilized near $1,610 in overnight trading, but climbed at as high as $1,625.38 this morning as the worrisome economic reports put pressure on the U.S. dollar.  The greenback dipped 0.3% against a composite of the world’s leading currencies, while the euro rose 0.3% to 1.2554 against the dollar.

Silver turned higher alongside the gold price on Wednesday, but underperformed the yellow metal as it was weighed down by weakness in cyclical commodities.  The spot price of silver slid to as low as $28.71 per ounce earlier this morning, but bounced back into positive territory by $0.04 at $29.05 as trading progressed.  In contrast, copper futures dropped to $3.31 per pound and crude oil fell to $82.40 per barrel.

Precious metals were buoyed by the Retail Sales report for May, which showed a 0.2% decline.  In addition, the data for April was revised from a gain of 0.1% to a decrease of 0.2%, which marked the first consecutive monthly decline for retail sales since May and June of 2010.  The Producer Price Index (PPI), a key measure of inflation in the U.S., showed a 1.0% decline in May, its largest monthly drop since July 2009.

The worrisome data is likely to provide the Federal Reserve with additional evidence that the economy is meaningfully slowing.  Furthermore, it could give the Fed cover for further monetary policy easing measures.  Following the reports, Jan Hatzius – chief U.S. economist at Goldman Sachs – reiterated his call for the Ben Bernanke-led central bank to announce a third round of quantitative easing (QE3) at next week’s FOMC meeting.

Looking ahead for the gold price, analysts at Commerzbank wrote in a note to clients that “Only a break above the current June high at 1641 will (put) the 50 percent Fibonacci retracement of this year’s decline at 1659.07 and the May high at 1672.10 in (gold’s) sights.  Below here, the outlook will stay neutral.”

Strength in the price of gold helped lift gold shares, as the Market Vectors Gold Miners ETF (GDX) climbed $0.42, or 0.9%, to $47.18 per share.  Among the large-cap gold producers, two of the best performing names this morning were Agnico-Eagle Mines (AEM) and Goldcorp (GG).  AEM jumped by $1.11, or 2.7%, to $42.36 per share while GG added $1.00, or 2.5%, to $40.37 per share.

As for the broader equity markets, they initially turned sharply lower subsequent to the release of the U.S. economic data, but later pared their losses.  The S&P 500 Index dropped as much as 0.7% to 1,315.26 but soon after rebounded toward unchanged at 1,323.87.