Gold Price Steady, Awaits Europe’s QE Decision

GOLD PRICE NEWS – The gold price stabilized near $1,695 per ounce on Wednesday as financial markets remained in consolidation mode ahead of tomorrow’s European Central Bank (ECB) meeting.  The price of gold held in a tight range between $1,689 and $1,697 in overnight trading after briefly surpassing the $1,700 level yesterday.  The U.S. Dollar Index dipped 0.1% to 81.257 this morning, while the euro rose 0.2% to 1.2598 against the greenback.

Silver lagged the price of gold on Tuesday, albeit by a modest amount, as it inched lower by $0.07, or 0.2%, to $32.30 per ounce.  Other precious metals were mixed, as platinum futures fell 0.1% to $1,566.30 per ounce while palladium rose 0.2% to $642.65 per ounce.  Among cyclical commodities, copper futures advanced 1.5% to $3.52 per pound while crude oil slid 0.8% to $94.55 per barrel.

Gold shares straddled the flatline alongside the gold price, with the Market Vectors Gold Miners ETF (GDX) holding near unchanged at $47.76 per share.  Within the sector, two of the best performing large-cap gold stocks were Gold Fields (GFI) and Randgold Resources (GOLD).  GFI rose by 2.6% to $12.47 while GOLD added 1.4% to $103.04 per share.

The gold price held firm this morning after a worse than expected report on economic activity in the euro zone.  A survey of purchasing managers fell from 47.9 in July to 47.2 in August – slightly below the 47.5 level economists were expecting and well under the 50 level that separates expansion from contraction.  The disappointing data underscored the headwinds that the euro zone continues to face as it struggles to combat the sovereign debt crisis.

In light of the weak economic data, HSBC’s chief European economist – Janet Henry – said that “We expect the ongoing deterioration in the growth outlook to be reflected in a downward revision to the ECB staff forecasts” at tomorrow’s meeting.

Jesper Dannesboe, senior commodity strategist at Societe Generale, wrote in a note to clients that “The market is confident something will come from the Fed, but it doesn’t expect massive quantitative easing. The ECB will have much more of an impact because it will prevent Spanish and Italian yields from going very high.”

Dannesboe’s comment came after ECB President Mario Draghi urged euro zone officials earlier this week to approve a bond-buying program aimed at capping interest rates in several of the PIIGS nations.  Draghi faces considerable opposition, however, from the Bundebank – Germany’s own central bank – which remains very concerned that such money printing measures would constitute the financing of fiscal deficits for such debt-strapped countries as Spain and Italy.

As for the gold price, Dannesboe stated that “I’m not a super bull on gold because there’s not enough ETF (exchange-traded funds) buying to call for a new high, but there’s enough reason to believe that in the short term speculators will buy gold given the context of quantitative easing.”