Gold Price Sinks on U.S. Dollar Strength

GOLD PRICE NEWS – The gold price fell as much as 1% Thursday morning, falling to $1,352 per ounce as strength in the U.S. dollar reduced the appeal of the yellow metal.  Weakness in the price of gold intensified following the weekly jobless claims data, which showed the lowest number of unemployment claims since July of 2008.

The U.S. Dollar Index (DXY) gained 0.62 to 78.25, led by gains versus the euro and yen.  Both oil and copper traded to the downside as, similar to gold, most of the commodity complex faced selling pressure.  The SPDR Gold Trust (GLD), the most liquid gold price proxy in the equity markets, slipped to 132 per share versus its 133.7 close from Wednesday.

Despite this morning’s softness in gold prices, they have managed to gain 1.5% thus far in February.  The price of gold has bounced back from its $1,314 low posted on January 27 amid the third consecutive disappointing U.S. nonfarm payrolls report and rising speculation of a third round of quantitative easing (QE3).

Fed Chairman Bernanke testified before the House Budget Committee yesterday and discussed his outlook for the economy and fiscal and monetary policy issues.  Commenting on the recent employment data, Bernanke state that “with output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level.”

When asked about the potential for QE3 during the Q&A session after his Congressional testimony, Bernanke responded that “If we’re still in a situation where the recovery does not seem established and deflation risk remains a concern, then we would have to think about additional measures.”  During the session, committee chair and Wisconsin Representative Paul Ryan sharply criticized the Fed’s quantitative easing programs, contending that they are a leading cause of asset bubbles and higher levels of inflation.

Ryan’s condemnation of the Fed’s policies was recently echoed by two prominent investors and long-time Fed critics.  Bill Fleckenstein wrote in his latest MSN column that “money-printing ultimately foments lunacy and distortions in financial markets and the economy. It also precipitates inflation, sometimes more than at other times.”  Fleckenstein also reiterated his bullish forecast for the gold price, but did not provide a specific target price at this time.

Dr. John Hussman, founder and portfolio manager of the Husssman funds, wrote that “we don’t take well to the notion that Ben Bernanke has little dials at his fingertips which precisely control the financial markets. Frankly, we seriously doubt that Bernanke has any sense at all of the needless and ultimately damaging speculative risks he has created.”  As for his views on the gold price, Hussman noted that his investment fund currently holds roughly 8% of assets in gold/precious metals equities, “which is a moderate but not aggressive position for us.”

(Source: http://www.goldalert.com/2011/02/gold-price-sinks-on-u-s-dollar-strength/)