GOLD PRICE NEWS – The gold price soared through $1,400 Tuesday morning, rising 1.4% to $1,403 per ounce. While the gold price climbed, the U.S. dollar dropped versus the euro and yen, helping to increase investors’ appetites for hard assets. Oil, copper, and silver all moved higher alongside the price of gold, which dipped briefly near $1,370 yesterday on concerns over monetary tightening in China.
The SPDR Gold Trust (GLD), the most liquid gold price proxy in the equity markets, climbed $1.00 to 137.00 while the iShares Silver Trust (SLV), the largest silver bullion exchange traded fund, rose 2.3% to $29.10.
The gold price – as well as silver, oil, and the rest of the commodity complex – continue to benefit from the U.S. central banks’ quantitative easing programs and a macro-economic backdrop characterized by negative real interest rates. Meanwhile, silver has outperformed the gold price this year, based in large part on its dual role as a precious and industrial metal amid the global economic recovery. With today’s advance, the silver price extended its year-to-date gain to 74%.
Shares of gold companies moved higher in pre-market trading on the back of stronger gold prices. Today’s strength follows a sell-off yesterday in the Philadelphia Gold & Silver Index (XAU), which dropped 0.3% to 220.50. Notable decliners in the gold sector on Monday included XAU components Agnico-Eagle Mines (AEM), Kinross Gold (KGC), and Yamana Gold (AUY). Shares of AEM, KGC, and AUY finished lower by 1.4%, 0.6%, and 0.6%, respectively. AEM, KGC, and AUY all rose this morning.
The XAU has risen 31% in 2010 and while the outlook for the share prices of gold producers is bright given a $1,400 gold price, not every fund manager is optimistic. Commenting on the strong performance of gold stocks in 2010, Dr. John Hussman highlighted the importance of declining U.S. Treasury bond yields and negative short-term real interest rates. The founder of The Hussman Funds noted that the XAU has historically risen 23% on an annual basis when the 10-year Treasury yield has remained below its level of six months prior, but has declined at a 5.9% annual rate during periods of rising yields.
With respect to the current economic environment, the 10-year U.S. Treasury yield recently climbed to 3.50% for the first time since early May of this year. Although real short rates are still in negative territory, Hussman noted that this backdrop “has historically not been enough to overcome rising bond yields and produce positive returns in the XAU, on average, except when the Gold/XAU ratio has been well above 7.” Presently, the ratio of the gold price to the XAU stands at 6.3.
Hussman contended that “investors chasing commodities have not paused to recognize that one of the major supports for this run – falling Treasury bond yields – has been knocked away from them.” Consequently, he viewed the recent strength in commodities as “purely speculative.” While Hussman stated that gold stocks remain reasonably valued in light of the current gold price, “the present Market Climate for precious metals shares…is just not positive anymore.”
Hussman’s caution is perhaps consistent with the skepticism that has been leveled at both the gold price and the shares of gold producers over the past decade. The gold price has risen for ten consecutive years and if bull markets climb a wall of worry, 2011 could prove to be number eleven.
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