Spot gold prices are trading sharply higher near $1,528 per ounce in early New York trading Wednesday. The London p.m. fix was set at $1,527.25. New York spot silver was trading around $35.90, up some $0.70, or nearly 2% from the open, having been fixed at $35.38 in London.
Gold and silver prices are now subject to what have historically been countervailing forces. Looking to combat inflation, China’s central bank raised interest rates for the third time this year on Wednesday. Gold has traditionally been viewed as an inflation hedge, so the central bank’s clear and strong intention to combat rising inflation can be viewed as a negative for gold prices.
Along the same line, some market analysts note that negative real interest rates have been supporting gold prices, and that higher interest rates will reduce its attraction as an investment.
Meanwhile, contagion effects resulting from fiscal crises in the EU are rearing up, with market participants worrying about the potential for already weakened banks to suffer another, potentially catastrophic shock should a sovereign default occur. The price of Portugal’s 10-year bond slumped in early European trade Wednesday, driving yields up some 1.2 basis points.
Gold has traditionally seen strong safe haven demand in such situations, though that may be called into question given the much greater role investment demand now plays in the overall demand equation. It was the U.S. dollar and short term and US Treasury securities that investors flocked to in the midst of the crash of 2008-2009, though gold and silver did hold up relatively well compared to investments in other financial instruments.
Further clouding the picture is the dollar-gold relationship and the expiration of quantitative easing, or “QE II.” Reversing their recent inverse relationship, the dollar and gold have both been trading higher the past two days. It may be the underlying nature of the dollar’s strength that accounts for the differing reactions on the part of gold market participants: stronger economic growth leads to a stronger dollar and/or higher interest rates in the US, or the currencies of any of the major economies, which, in turn, leads to weaker gold prices. Dollar strength lead by increased perceptions of financial or fiscal crises, on the other hand, leads to stronger U.S. dollar demand as a safe haven, and, lumped in with all other financial assets in this case, a falloff in the price of gold.
Taking a look at the markets, the major gold and silver ETFs were moving higher in early trading.
- The SPDR Gold Trust (NYSE: GLD) was trading was up around 0.8%.
- The iShares Gold Trust (NYSE: IAU) was up some 0.7%.
- The iShares Silver Trust (NYSE: SLV) was up more than 0.5%.
Gold and silver mining ETFs were heading higher as well.
- The Market Vectors Gold Miners ETF (NYSE: GDX) was up some 0.7%.
- The Market Vector Junior Gold Miners ETF (NYSE: GDXJ) was up more than 1.2%.
- The Global X Silver Miners ETF (NYSE:SIL) was up around 0.9%.
Individual gold mining shares were also trading higher, Newmont Mining (NYSE:NEM) being an exception.
- Agnico Eagle Mines (NYSE: AEM) was trading up about 0.5%.
- Barrick Gold (NYSE: ABX) was trading higher, up 1%.
- Goldcorp (NYSE: GG) was up more than 0.5%.
- Newmont Mining Corp. (NYSE: NEM) was trading down around 0.5% due to news that Indonesia’s corruption commission was investigating whether or not the company breached rules regarding foreign ownership of mining assets.
- NovaGold Resources (AMEX: NG) was up between 0.8% and 1%.
Silver mining stocks were also stronger due to rising prices:
- Coeur D’Alene Mines Corp. (NYSE: CDE) was up between 1.5 and more than 1.7%.
- Hecla Mining (NYSE: HL) was trading more than 1.1% higher.
- Pan American Silver Corp. (NASDAQ: PAAS) was up around 1%.
- Silver Wheaton Corp. (NYSE: SLW) was up more than 2.2%.
- Silver Standard Resources Inc. (NASDAQ: SSRI) was trading more than 0.4% higher.
