Spot gold prices traded as high as $1074.30/ounce this morning, after three straight losing sessions last week. Since reaching that high, prices have backed off about $10/ounce.
SPDR Gold Shares (GLD) are trading down slightly this morning, and gold miners Barrick (ABX), Goldcorp (GG), Newmont (NEM) and AngloGold Ashanti (AU) are also down between 1% and 2%.
Gold has been correlating inversely with the U.S. dollar recently. As the dollar strengthens, gold prices fall. When the dollar gets weaker, gold prices rise. The dollar had a good week last week, primarily as a result of the continuing sovereign debt crisis in Spain, Greece and Portugal.
The dollar’s strength has been depressing gold prices, but the weekend meeting of the G7 nations concluded with the group’s continued commitment to stimulus. In a statement, the G7 acknowledged that economic recovery is beginning but is not yet “firmly established.” The group also said that it would begin looking at ways to end government stimulus programs and regain some fiscal stability.
That would be great, except the problems in Spain and Greece are putting increasing inflationary pressure on the euro, causing it to decline against the dollar. Thus, the decline in gold prices.
Then, on Sunday, U.S. Treasury Secretary Geithner made some comments that caused the dollar to weaken somewhat, leading to today’s rise in gold prices. Geithner downplayed the possibility of a double-dip recession but did admit that recovery would be slow and uneven. Geithner also said that the U.S. would “never” lose its triple-A debt rating.
On the strength of the weekend’s pronouncements, gold looked like a good buy again. The G7 was holding the line on the euro, and the dollar would not continue to strengthen. Time to buy gold.
An analyst at RBS Capital Markets wrote an opinion today that serious new purchases of gold won’t take place until the price hits $1,125/ounce. Current resistance appears around $1,080/ounce, with a floor price of $1,030/ounce. Those technical markers help put today’s rise in perspective.
And that’s about the whole story on today’s rise in the price of gold. It is unlikely that the events leading to today’s rise signal a rise back to highs over $1,200/ounce. That may yet happen, but the cause will be something more compelling than a news conference and a statement by the U.S. Treasury Secretary.
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