Gold Price Dips, Stimulus Outlook Remains Cloudy

GOLD PRICE NEWS – The gold price slipped $5.64, or 0.4%, to $1,576.46 per ounce on Wednesday as investors digested the second day of Congressional testimony by Fed Chairman Ben Bernanke.  The spot price of gold fell to $1,567.38 earlier this morning, but recouped the majority of its losses as the U.S. dollar pared its gains against a basket of foreign currencies.  Nonetheless, the gold price remains near the lower end of the trading range it has occupied since early May.

Silver inched lower alongside the price of gold on Wednesday, by $0.05, or 0.2%, to $27.25 per ounce.  Gold’s sister precious metal has also continued to languish near a multi-month low, driven by ongoing strength in the U.S. dollar and the lack of further monetary stimulus from the Federal Reserve.  On a year-to-date basis, silver is now lower by 1.7%, while the gold price remains up by only 0.8%.

Gold shares continued to be weighed down by weakness in the yellow metal, as the Market Vectors Gold Miners ETF (GDX) retreated $0.41, or 1.0%, to $41.29 per share this morning.  Notable decliners in the sector included GDX components Gold Fields (GFI), Goldcorp (GG), and Kinross Gold (KGC).  GFI dropped by 1.6% to $11.94, GG by 2.9% to $32.68, and KGC by 1.0% to $7.92 per share.

The gold mining sector continued to lag the broader equity markets as well, as the S&P 500 Index climbed 0.6% to 1,371.28 – its highest level in close to two weeks.  Investor risk aversion continued to decline in the process, as the CBOE Volatility Index (VIX) fell to 15.69 – its lowest point since April 3rd of this year.  European equity markets charged higher as well, with exchanges in England, France, and Germany each posting gains of at least 1.0%.  In the currency markets, the euro dipped 0.3% to 1.2266 against the U.S. dollar after earlier falling to 1.2228.

In his second day on Capitol Hill, Ben Bernanke delivered the same testimony to the House Financial Services Committee as he did on Tuesday to the Senate Banking Committee.  Today, however, the Fed Chairman faced questions primarily on issues of Fed transparency and accountability – whereas yesterday the focus was on the Libor scandal and the “fiscal cliff” facing the U.S.

A common theme on each day, however, was the lack of discussion regarding further monetary stimulus.  Due in large part to the likelihood of less currency debasement in the near future, gold prices and other precious metals have suffered.

George Gero, precious metals strategist at RBC Wealth Management, noted that he was not expecting Bernanke to discuss QE3 because of the nature of the Congressional hearings.  “I don’t think that this is the platform when he will usually say something that is going to be unusual or dynamic.  Basically he’s testifying, which means he’s answering questions.”

Looking ahead, several strategists expect the price of gold to remain range-bound.  Analysts at Marex Spectron wrote in a report to clients that “No doubt, the gold bulls will seize on the fact that further stimulus is not off the table, but it is not going to happen for a while, if it ever does, and as such the upside for gold remains limited to my mind. We are still in the same ranges.  I see no reason for the time being for that to change. The market remains thin, with low volumes and no real interest.”