Gold Prices Climb, Dismal Economic Data Rolls In

GOLD PRICE NEWS – Gold prices rose on Thursday amid several disappointing U.S. economic reports and modest weakness in the U.S. dollar.  The spot price of gold climbed as much as $13.56, or 0.9%, to $1,591.48 per ounce earlier this morning, but pared its gains as the dollar recaptured a portion of its losses against a basket of foreign currencies.  With today’s advance, the gold price returned to positive territory on a weekly basis, by 0.2%, but remained down by 0.5% thus far in July.

Silver jumped in concert with the price of gold, by as much as $0.30, or 1.1%, to $27.57 per ounce.  As trading progressed, however, the spot price of silver relinquished the majority of its gain to trade up by only $0.08, or 0.3%, at $27.35 per ounce.  In doing so, silver also moved into the black on a weekly basis, by 0.2%, but was still lower this month by 0.6%.

Gold shares enjoyed a welcome respite on Thursday following a particularly week stretch in recent weeks.  The Market Vectors Gold Miners ETF (GDX) – which has closed lower on 17 of the past 21 trading days and is presently on a three-day losing skid – advanced $0.51, or 1.2%, to $41.63 per share this morning.  Notable gold producers moving higher included IAMGOLD (IAG), Kinross Gold (KGC), and New Gold (NGD).  IAG rose by 2.0% to $10.79, KGC by 2.9% to $8.10, and NGD by 3.5% to $10.09 per share.

The gold sector outperformed the broader equity markets this morning, as the S&P 500 Index oscillated between gains and losses near 1,372.78.  The S&P briefly reached 1,378.23 – its highest level since May 4th – but soon after surrendered its gains as the U.S. dollar bounced back from negative territory.

A slew of worse than expected U.S. economic data put pressure on the broader markets and provided an underpinning for the price of gold.  Weekly jobless claims increased by 34,000 to 386,000, well above the 365,000 level economists were expecting.  The Philadelphia Fed Index – a key measure of manufacturing activity – came in at negative 12.9 – below the negative 8.0 consensus estimate among economists.  Existing homes sales fell to 4.37 million on a seasonally-adjusted annual basis, missing the 4.62 million level economists were expecting.  Lastly, the index of Leading Indicators dropped by 0.3% in June, short of the 0.1% decline expected by economists.

The plethora of dismal data echoed comments earlier this week from Federal Reserve Chairman Ben Bernanke, who acknowledged in his congressional testimony that U.S. economic growth has slowed considerably in recent months.  However, “Helicopter Ben” stopped short of saying that further monetary policy easing – such as via a third round of quantitative easing (QE3) – is forthcoming.

While the lack of discussion regarding QE3 helped to push the gold price lower earlier this week, if the economy continues to worsen, the Fed may be forced to reconsider its stance.

David Jollie, a precious metals analyst at Mitsui, noted that “It seems that every time we do not have QE3 announced, gold slips back as some of these more speculative positions are liquidated.”  However, Jollie added that “After that disappointed selling, I think the market returns to more normal behaviour and some of these speculators will try to rebuild positions. Others such as the official sector are also likely buyers on price declines.”