GOLD PRICE NEWS – The gold price recaptured the $1,400 per ounce level, rising $7.30 to $1,403 per ounce Wednesday. Commodities rebounded alongside the gold price after five consecutive days of losses. Copper rose 2.8% to $4.25 per pound and crude oil climbed 1.9% to $99.85 per barrel. Silver, gold’s sister precious metal, rose 1.8% to $34.71 per ounce. This morning’s economic data painted a stagflationary picture of the U.S. economy.
Housing starts dropped 22.5% to a 479,000 annual rate – the slowest pace since April of 2009. On the inflation front, the Producer Price Index (PPI) rose 1.6% month over month versus expectations of 0.7%. The hotter than expected PPI number poses a threat to the Fed’s zero interest rate policy although the weak housing data will likely keep Bernanke and his colleagues in the dovish camp for the forseeable future.
The gold price plunged $29.45 to $1,397.06 yesterday as the price of gold was weighed down by widespread liquidation on Wall Street. The weakness in financial markets, which pressured all assets classes –including gold – stemmed from fears over the escalating nuclear crisis in Japan. Silver followed the gold price lower, dropping $1.56, or 4.3%, to $34.37 per ounce. The Dow Jones Industrial Average (DJIA) tumbled as much as 296.91 points, before settling down 137.74 points at 11,855.42.
Gold equities tumbled in concert with the gold price, as the AMEX Gold Bugs Index (HUI) retreated 2.3% to 534.57. With today’s decline, the HUI extended its year-to-date loss to 6.8%. In addition, it is now 10.7% below its all-time high of 598.36, reached on December 7, 2010. Notable gold companies moving lower Tuesday included AngloGold Ashanti (AU), Barrick Gold (ABX), and Kinross Gold (KGC). AU, ABX, and KGC finished with losses of 2.1%, 3.5%, and 2.8%, respectively.
The gold price plunged as low as $1,381 during yesterday’s session as financial markets convulsed in amid concerns over a nuclear meltdown in Japan. The Nikkei 225, Japan’s benchmark equity index, suffered its worst two-day decline since the crash of 1987. In response, the Bank of Japan (BOJ) injected 20 trillion yen ($245 billion) into the nation’s banking system in an attempt to stem the tide of widespread liquidations. Stocks in Japan bounced overnight amid bargain hunting for beaten-down securities.
The nuclear crisis escalated after an explosion occurred at the Fukushima nuclear plant at reactor No. 2, followed by concerns over damage to reactor No. 4. Elevated radiation levels were also reported in Tokyo, as winds moving southward carried the radioactive materials to the country’s capital.
Andre-Claude Lacoste, President of France’s nuclear safety, stated that the crisis is “at a level in between what happened at Three Mile Island and Chernobyl.” Iouli Andreev, a Russian nuclear accident specialist who 25 years ago advised on the clean-up of Chernobyl, the world’s worst nuclear accident, criticized Japan’s response to the crisis. Andreev accused the United Nations’ International Atomic Energy Agency (IAEA) and the corporations it regulates of purposefully ignoring lessons from Chernobyl in order to protect the nuclear industry’s expansion.
The Federal Reserve held its latest Federal Open Market Committee (FOMC) meeting on monetary policy on Tuesday. The U.S. central bank decided to continue with its $600 billion quantitative easing program and kept interest rates unchanged at record low levels. Although a minority of Fed Governors had expressed concern in recent weeks over the inflationary consequences of the Fed’s policies, there were no dissenting votes at the latest FOMC meeting.
In its statement, the Fed noted that the U.S. employment market “appears to be improving gradually,” but the “the housing sector continues to be depressed.” Today’s weak data on housing starts confirms this analysis. As for the recent run-up in commodity prices, the Fed stated that it “expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations.” The statement made no mention of the crisis in Japan.
Commenting on the Fed’s decision, analysts at Royal Bank of Scotland stated that “The uncertainty generated by recent developments in Japan gives the Fed even more reason to show patience. Indeed, it is possible lingering uncertainty could push back the timetable” for tighter monetary policy.
While the gold price showed little reaction to the Fed announcement, remaining near $1,395 per ounce, the added uncertainty of the Japanese crisis does create a more favorable backdrop for the price of gold. Moreover, if the sell-off in Japanese financial markets spreads to other markets around the world, the Federal Reserve is likely to move slower on altering its current slew of easy monetary policies.
Marc Faber, the prominent market pundit who called the stock market crash of 1987, went further with respect to his prediction on the Fed’s course of action. In a CNBC interview on Tuesday, Faber forecasted several more rounds of quantitative easing, even mentioning a “QE18.” While Faber is often prone to hyperbole, he went on to say that Bernanke, whom he nicknamed “the money printer,” will “continue to print, that I’m sure.” In such a scenario, the gold price is likely to benefit substantially.
(Source: http://www.goldalert.com/2011/03/gold-price-recaptures-1400-on-stagflation-worries/)
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