Gold Price News The gold price exploded to record highs, trading through the $1,140 per ounce level, as investors scrambled for exposure to the gold price amidst aggressive U.S. dollar selling. Chairman Ben Bernanke spoke yesterday morning to the Economic Club of New York and reiterated his support for a strong dollar. However, following a brief rise after Bernanke’s comments, the U.S. dollar resumed its downward trend and closed at a 15-month low, as measured by the U.S. Dollar Index (DXY). Despite assurances that the Federal Reserve is “attentive to implications of changes in the value of the dollar,” the gold price, once again, climbed to new record highs. Traders paid more heed to the Fed’s actions and to the Federal Open Market Committee’s policy statement released two weeks ago - reiterating the Fed’s promise for a continuation of its zero interest rate policy “for an extended period,” than to Bernanke’s profession of support for the dollar. COMEX gold futures closed up $22.50 at $1,139.20 per ounce, rising for the tenth day in the last eleven trading sessions - now higher by nearly $110 from its $1,030.43 close on October 28. While widely-followed inflation gauges such as consumer and producer price inflation indices show tepid price pressures at this point, the Fed’s easy money policies risk fueling higher expectations of future inflation. The declining dollar and rising gold price suggest that the risks of inflation expectations becoming un-anchored are rising, a phenomenon that Fed officials constantly reference in their policy statements. Ron Paul, Republican congressman from Texas, in an op-ed in Forbes, criticized the large-scale government intervention and warned that the end result of current central bank policy will be inflation. Paul penned, “The Fed has already overseen a 95% loss in the dollar’s purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing 95% devaluation every year.” The renewed surge in the gold price following Bernanke’s remarks is seen by a number of analysts as evidence that the market is no longer taking the Fed at its word when it comes to its defense of the U.S. dollar. Market participants are increasingly ignoring verbal jawboning by Fed officials and focusing on actions - which clearly favor dollar weakness. Bernanke’s comments come on the heels of another bullish development for the gold price stemming out of Asia. The Asia-Pacific Economic Cooperation group expressed its continuing support for the fiscal and monetary stimulus policies that have been implemented by the world’s governments and central banks. This proclamation started yesterday’s aggressive wave of U.S. dollar selling and led to investors across the globe further pressing dollar carry trades, borrowing dollars to purchase higher yielding and riskier asset classes. Meanwhile, share prices of gold mining equities have swelled on the gold price surge. The Market Vectors Gold Miners ETF (GDX) climbed another 3.1% yesterday to close at $51.34 - its highest level since March of 2008. Hedge funds and institutional investors have flocked to both physical gold and gold mining stocks this year on the back of a macroeconomic climate characterized by a weak U.S. dollar and rising liquidity. The latest high-profile institutional investor to reveal a significant stake in a gold mining company is Steven Cohen’s SAC Capital, one of the most successful hedge funds over the past two decades. SAC, in a 13F filing with the Securities and Exchange Commission (SEC), revealed a 3,958,000 share position in the world’s largest gold mining company, Barrick Gold (ABX). Barrick is now the firm’s third largest holding. Cohen joins John Paulson, David Einhorn, Paul Tudor Jones, and Paul Touradji in the rush to accumulate gold price exposure. Even gold mining companies are angling for increased gold price exposure. Goldcorp (GG), the world’s second largest gold producer, announced yesterday it had reached an agreement to purchase Canplats Resources (CPQ.TSXV) for $228 million in order to increase its gold reserves. Other major gold producers have been incrementally adding to reserves with a number of other transactions occurring this year. The successful launch last week of the Market Vectors Junior Gold Miners ETF (GDXJ) has the potential to elevate the profile of small-cap gold miners. If the upward trajectory of the gold price continues, junior gold producers could attract the attention of their larger brethren - and the industry could see its most frenzied merger and acquisition activity in years.

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