GOLD PRICE NEWS – The gold price surged higher on the first trading day of 2012, rising $22.50 to $1,588 per ounce. While the price of gold finished up 10.0% in 2011, the yellow metal fell 10.4% in December, marking its second-worst month since the financial crisis of 2008. Silver fared even worse, sinking 15.6% last month and closing the year with a 9.8%. Other precious metals finished further in negative territory, as platinum and palladium tumbled 21.0% and 18.0%, respectively, in 2011.
Despite the recent correction, the gold price wrapped up 2011 by climbing $17.22, or 1.1%, to $1,563.80 per ounce. Furthermore, the gold price posted its 11th straight year of gains and was one of the world’s top performing asset classes last year. Along the way, the yellow metal reached a series of new all-time nominal highs – culminating on September 6th with its current record of $1,923 per ounce.
Stocks and commodities rose alongside gold prices Tuesday morning as sovereign debt fears were put on the backburner. The new Long-Term Repurchase Operation initiated by the European Central Bank has funneled hundreds of billions of dollars into the continent’s banking institutions. S&P 500 stock futures gained 19.80 to trade at 1272.40 while oil prices rose 2.5% to $101.27 per barrel.
Amid the turmoil in Europe, investors have sought refuge in the U.S. dollar – the world’s reserve currency – a development that has led to widespread liquidation in investments tied to the gold price. Gold stocks have been hit particularly hard as a result, evidenced by the 16.1% 2011 annual drop in the Market Vectors Gold Miners ETF (GDX). Barrick Gold (ABX), the world’s largest gold producer, retreated 14.0% last year. One of the best indicators of the sector’s dismal performance last year was that Newmont Mining (NEM) – the only gold stock included in the S&P 500 Index – fell 0.1% last year but was still one of the best-performing gold producers.
Looking ahead to the first trading week of the new year, a slew of U.S. economic reports are likely to serve as catalysts for the gold price. Later this morning, the ISM Index – a key manufacturing gauge – and a report on Construction Spending will be released. The latest Fed minutes – from last month’s Federal Open Market Committee (FOMC) meeting – are due out this afternoon. The remainder of the week includes several data points on the labor market – with ADP employment and weekly jobless claims scheduled for Thursday, followed by the monthly non-farm payrolls data on Friday.
The Federal Reserve will undoubtedly be keeping a close eye on the economic data as it prepares for its next FOMC meeting on January 25-26. The potential for a third round of quantitative easing (QE3) will continue to be a critical factor for the gold price heading into 2012. Thus far, the Ben Bernanke-led Fed has stressed the importance of maintaining accommodative monetary policies for the foreseeable future, but has yet to launch a new money printing campaign.
While the calendar is considerably quieter in Europe this week, German Chancellor Angela Merkel and French President Nicolas Sarkozy announced yesterday that they will meet in Berlin on January 9 to discuss next steps in combating the sovereign debt crisis. Euro zone officials are then scheduled to meet on January 30 at the next European Summit to draft a stricter set of measures for reigning in government spending.
Commenting on the outlook for the gold price, VTB Capital analyst Andrey Kryuchenkov wrote in a recent note to clients that “Longer-term players and physical buyers are likely to return to the market in the first half (of 2012), while the latest price retreat could serve as a good encouragement for hesitant market participants…There is little alternative to gold in times of economic uncertainty, despite the recent rush for the dollar. Gold stands on its own in terms of safe haven buying and bullion allocations are only likely to gain with currency protectionism still at large.”