Gold Price Dips, Euro Concerns Fuel U.S. Dollar Rally

GOLD PRICE NEWS – The gold price turned modestly lower on Friday as renewed European sovereign debt concerns put pressure on the euro and fueled a rally in the U.S. dollar.  The price of gold held steady near $1,583 per ounce in overnight trading, but dipped by $6.37, or 0.4%, to $1,575.25 this morning as the U.S. Dollar Index climbed 0.7% to 83.59.  Escalating financial turmoil in Spain helped drive the euro currency down y 1.0% to 1.2165 – its lowest level since the week of June 14, 2010.

Silver underperformed the gold price this morning, as it dropped by $0.31, or 1.1%, to $26.99 per ounce amid widespread weakness in the commodities complex.  Among other precious metals, platinum futures retreated 0.8% to $1,411.90 per ounce while palladium slipped 1.3% to $577.45 per ounce.  As for cyclical commodities, crude oil futures fell 1.6% to $91.48 per barrel while copper sunk 2.3% to $3.45 per pound.

Gold shares held up reasonably well on Friday despite the moderate gold price sell-off.  The Market Vectors Gold Miners ETF (GDX) oscillated between gains and losses near $141.59 per share.  Two of the better performing GDX components were Gold Fields (GFI) and Goldcorp (GG), which rose by 1.8% to $12.06 and by 0.4% to $33.42 per share.

The gold sector fared far better than the broader equity markets, as the S&P 500 Index slid 0.6% to 1,368.06.  Investor risk aversion turned higher in the process, with the CBOE Volatility Index (VIX) jumping 5.6% to 16.32.  However, the VIX still remains near the lower end of the range it has occupied in recent months.

After several days in which the Federal Reserve was in the spotlight as Chairman Ben Bernanke delivered his two-day testimony to the U.S. Congress, sovereign debt worries in Europe returned to the forefront on Friday.  Weak demand at a Spanish bond auction pushed the nation’s ten-year yield back above 7%.  Concurrently, Germany’s central bank voted to approve the bailout package of Spanish banks announced several weeks ago.  Under the terms of the plan, the Spanish government will be able to borrow up to €100 billion to finance banking sector restructuring.

While the price of gold remained in negative territory this morning, it held up far better on Friday than on other days this year when the U.S. dollar has advanced.  Furthermore, despite the fact that the U.S. Dollar Index is trading near a multi-year high, the gold price remains well above its 52-week low of $1,523 per ounce – reached on December 29, 2011.

However, with the price of gold having been unable to surmount a sustainable rally thus far in 2012, investor sentiment toward the yellow metal has remained lackluster.  In addition, the absence of a third round of quantitative easing (QE3) by the Federal Reserve has provided a considerable headwind for the yellow metal.

David Wilson, Director of Metals Research and Strategy at Citigroup, wrote in a note to clients that “Physical investor demand, when you look at ETFs, is not positive, so you would need speculative demand to be making up the difference, and it’s not. That’s related to the issue of growing skepticism over whether there will be U.S. QE.”