Gold Price Blasts Through $1,380

GOLD PRICE NEWS – The gold price rallied $7.40 to $1,381.85 per ounce, hitting 5-week highs amid heightened inflation worries.  Gold prices have climbed in a steady fashion in February, gaining $48 over the course of this month.  The January Consumer Price Index (CPI) rose 0.4% month over month, ahead of the 0.3% consensus estimate among economists.  The core rate, which excludes food and energy (who needs to drive or eat?), climbed 0.2% – the largest gain since October of 2009.

The SPDR Gold Trust (GLD), the most liquid gold price proxy in the equity markets, gained 0.70 to $134.81 per share ahead of the opening bell.  The gold price is looking to advance for the fourth consecutive day and is on pace for its largest weekly gain, +2%, in 2011.

Gold shares followed the gold price higher early Thursday morning as a string earnings report for Barrick Gold (ABX) helped to buoy the sector.  Gold equities have posted gains this strong month after sever weakness to open the year.  After plunging 11.7% in January, the AMEX Gold Bugs Index (HUI) is now higher by 7.4% in February and by 3.9% this week alone.  Notable advancers on Wednesday included Gold Fields (GFI), Harmony Gold (HMY), and Kinross Gold (KGC).  GFI, HMY, and KGC rose 2.7%, 1.4%, and 2.0%, respectively.

Yesterday, the gold price jumped to an intra-day high of $1,382.70, but pared its gains after the Fed minutes were released.  The summary of the Federal Reserve’s latest monetary policy meeting included similar rhetoric to that which has been delivered in recent months.  Since the onset of QE in November, Chairman Bernanke and the Fed have highlighted the progress of the economic recovery.  However, they have also continued to point to challenges in the employment and housing markets as factors necessitating their crisis-level monetary policies.

The latest Fed minutes included a reiteration of this view – economic recovery “firming,” a lack of “significant improvement in labor market conditions,” and weakness in “construction activity in both the residential and nonresidential sectors.”  The Fed minutes also addressed commentary from a few FOMC members that “additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size” of QE2.  In response, the minutes noted that other FOMC members “pointed out that it was unlikely that the outlook would change by enough to substantiate any adjustments to the program before its completion.”

The overall message from the Fed minutes was that Bernanke and the majority of FOMC members intend to keep interest rates near the zero bound for the foreseeable future and carry out QE2 to its conclusion.  Moreover, the commentary will add to speculation that the Fed is considering additional rounds of quantitative easing if the labor and housing markets remain challenging.

Early this morning, the Labor Department released initial jobless claims for the most recent week and the results illustrated the ongoing weakness in the labor market.  Jobless claims increased by 410,000, ahead of the 400,000 median estimate of economists surveyed by Bloomberg.

The challenging labor market will likely ensure that real interest rates remain in negative territory for the foreseeable future, a fact that would continue to create a very favorable macro-economic backdrop for the gold price.

(Source: http://www.goldalert.com/2011/02/gold-price-blasts-through-1380/)