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Gold Price Holds Near $1,405, Dollar Falls

Release Date: 
Wednesday, December 29, 2010

GOLD PRICE NEWS – The gold price held firm Wednesday morning at $1,405.75 as the U.S. dollar came under renewed selling pressure.   The U.S. Dollar index (DXY) fell 0.16 to 80.24, led by a rise in the euro. Today's consolidation in the price of gold follows yesterday's 1.6% gain – a rally that saw the gold price re-take the psychologically-important $1,400 per ounce level.  Yesterday's strong gold price rise came amid a disappointing Case-Shiller housing report.

The weaker-than-expected housing data sent the dollar lower versus the euro and the Canadian and Australian dollars, helping to boost not only the gold price, but the bulk of the commodity complex.  Copper and silver prices have been on a tear as of late with the former making another all-time high this morning at 4.33 per pound and the latter boosting its 2010 gain to over 80% at $30.41 per ounce.

In keeping with prior instances of poor economic reports, the gold price rose as investors perceived the weak housing figures as further evidence that the Federal Reserve will continue to maintain both its zero interest rate policy and its asset purchase program.  The SandP/Case-Shiller 20 City Home Price Index for October fell 0.8% on year-over-year basis, below the consensus estimate among economists for a 0.1% increase.  Adding to the disappointment was the fact that home prices dropped in all 20 metropolitan areas in the Index, and that October's decrease marked the fourth consecutive decline on a monthly basis.

Commenting on the data, David Blitzer, chairman of the index committee at Standard & Poor's – which tracks the Case-Shiller data – stated that "The double dip is almost here, as six cities set new lows for the period since the 2006 peaks.  There is no good news in October's report.  Home prices across the country continue to fall."

Adding further fuel to the fire were comments from Nouriel Roubini, the noted NYU economics professor.  In a CNBC interview, Roubini stated that "The shadow inventory of not-yet-foreclosed homes-due to the (foreclosure) moratorium-will surge in the next year."  Roubini also noted in a text message to the network that "12 million households are already in negative equity and 8 million more have an LTV (loan to value) btw 95 and 100%.  Thus even a 5% fall in home price will push an extra 8 million in negative equity with risk of millions walking away from their home-i.e. jingle mail."

Compounding the challenging U.S. housing market's are rising Treasury yields, to which mortgage rates are tied.  Following today's disappointing U.S. Treasury Note auction, the yield on the 10-Year Note surged as much as 16 basis points to 3.50%.

While some investors have attributed the rise in yields in recent months to an improving economy and higher inflation expectations, today's gold price surge would suggest otherwise.  It was simply supply and demand that drove yields higher.  With persistent deficits and a mountain of debt, demand for U.S. government securities may be finally starting to wane.  These developments point to a more challenging and uncertain economic environment – one in which the gold price generally performs quite well.

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This article is independently provided by and does not represent the views or opinions of Goldline International, Inc. Although the information in this article has been obtained from sources believed to be reliable, Goldline does not guar­antee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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