Gold Price Battle at $1,200


"The gold bulls are in control to start the day."

The gold price bounced back above $1,200/oz. this morning, moving higher on a quiet day on Wall Street. The gold price has oscillated near $1,200 for most of the week closing above it on Monday and Wednesday and below it on Tuesday and Thursday. The gold bulls are in control to start the day as the price of gold is up $12.27 to $1,210.77.

The gold price has been mired in a correction over the past three weeks that has led to selling pressure on all investments tied to the gold price, including gold ETFs, mining producers and explorers. The SPDR Gold Trust (GLD) has fallen 4.5% since June 18, while the Market Vectors Gold Miners ETF (GDX) has dropped 8.7% over the same time period. As deflation worries have intensified, investors have deleveraged and taken refuge in U.S. government bonds. Stocks, commodities, and as of late, the gold price, have all moved lower amid worries over a double-dip recession.

Gold had been receiving large investment flows, evidenced by the surge in assets of gold ETFs, which recently crossed the $50 billion mark. However, in recent weeks the allure of gold has waned and COMEX gold futures are set to close lower for the third week in a row.

Sentiment toward the gold price has declined across the board. Market Vane bullish consensus figures, at 63%, are at their lowest levels since August 2009. There is very little speculative activity in the small-cap gold stocks and a parade of analysts are still calling gold a "bubble"—further evidence of the skepticism regarding the sustainability of a $1,200 gold price.

The more aggressive central bankers will ultimately be. With the interest rate component of monetary policy exhausted, further quantitative easing initiatives remain one of the few options left. The end result will be currency debasement, which presents a fundamentally positive backdrop for the gold price.

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