GOLD PRICE NEWS – The gold price held steady near $1,735 per ounce on Wednesday after Germany’s constitutional court chose not to reject the nation’s participation in the European Stability Mechanism (ESM). The spot price of gold jumped 1.0% to an overnight high of $1,749.43 after the German announcement, while the euro currency rose to a four-month high of 1.2936 against the U.S. dollar. However, as trading progressed the gold price pared its gains alongside the euro, which slipped back to 1.2894.
Silver followed a similar trajectory to that of the price of gold, climbing to $34.14 per ounce in overnight trading but later relinquishing its gains. However, in morning trading silver futures dropped 1.1% to $33.09 amid escalating volume at the COMEX.
Gold and silver shares came under pressure as precious metals retreated from their overnight highs, with the Philadelphia Gold & Silver Index (XAU) sliding 1.4% to 174.66. Among gold producers, Barrick Gold (ABX) fell by 1.2% to $38.97 while Kinross Gold (KGC) by 1.4% to $9.33 per share. Pan American Silver (PAAS) and Silver Wheaton (SLW) – two widely-held silver stocks – declined by 1.4% to $18.50 and by 1.8% to $35.41 per share, respectively.
Financial markets showed a modestly positive reaction to news that the German Federal Constitutional Court in Karlsruhe dismissed motions that aimed to block the ESM. However, the Court also ruled that Germany’s € 190 billion contribution cannot be raised without approval from parliament. Nonetheless, the decision significantly reduces the likelihood that Germany will choose not to participate in providing financial assistance to several of the PIIGS countries.
Commenting on the implications for the gold price, Commerzbank wrote in a note to clients that “The Euro bailout measures and the opening of the monetary policy floodgates by the central banks are likely to result in higher inflation in the medium to long term…[This] should benefit gold in particular as a store of value and alternative currency.”
In the short-term, however, the measures taken in Europe are likely to reduce the odds that the Federal Reserve announces a third round of quantitative easing (QE3) at tomorrow’s FOMC meeting – according to Peter Tchir of TF Market Advisors and a contributor to Minyanville.com.
This morning, Tchir contended that “With Europe finally coming up with something that resembles a plan, it will be hard for Bernanke to justify QE. He has been adamant that problems in Europe have been a big concern. It would be bordering on irresponsible to flood liquidity into the U.S. until he sees how the markets react to the latest actions in Europe.”
“I expect a very dovish statement, lots of hints and promises,” Tchir added, “but limited action.” He went on to say that Europe “may well just be starting balance sheet expansion,” and can “actually cut rates” as part of its monetary policy.
Tchir’s assertion is reflected in the fact that the euro-denominated gold price climbed to an all-time high near €1,350 per ounce this week, while the U.S. dollar-denominated price of gold remains below its $1,922 record level reached in September of 2011.
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