While the gold price fell on Friday, the Dow Jones Industrial Average (DJIA) rose to 12,273.26, its highest closing level since June 13, 2008. Moreover, the Dow Jones has now rallied 87.5% from its 6,547.05 closing low on March 9, 2009. Risk appetites have steadily expanded and investor complacency is evident in the collapse of the CBOE Volatility Index (VIX), which sank to 15.69.
Gold equities fared worse than the gold price last week as the Philadelphia Gold & Silver Index (XAU) dropped 1.7% to 203.73. Year-to-date the XAU has underperformed the gold price, falling 10.1%. Notable decliners on Friday included Yamana Gold (AUY), Kinross Gold (KGC), and Randgold Resources (GOLD), which lost 1.4%, 0.9%, and 2.2%, respectively. Gold shares were set to open higher Monday in premarket activity.
Geo-politics has dominated the psyche of the market in recent sessions as markets have twisted and turned on the news out of Egypt. On Friday, President Hosni Mubarak resigned amid large protests and social unrest and investors cheered by bidding up equity prices. Following Mubarak’s resignation, Egypt’s military vowed a transition to a more democratic form of government “as soon as possible.”
The Supreme Council of the Armed Forces, which has stated that it will not serve as a replacement for a legitimate government, chose to keep the current cabinet members in office until the transition process concludes. The Muslim Brotherhood, the primary political opposition group in Egypt, called for Parliament to be dissolved, the state of emergency to end, and for “free and fair elections under judicial supervision.”
While Mubarak’s resignation offers the potential for capitalist democracy in Egypt, much uncertainty lies ahead. The nation is still struggling with rising food and energy prices, as well as high unemployment. John R. Bradley, author of several acclaimed books on the Middle East, wrote in the British newspaper, Daily Mail, that the future in Egypt “very much depends on whether Egypt’s new military leaders can do what none of their predecessors managed to do: give up power voluntarily when asked.”
Bradley went on to say that “Widespread Arab discontent with America over its pro-Israeli policy and its invasion of Iraq was kept from boiling over by the intervention of strong military rulers such as Mubarak. Now that level of control had gone, angry and potentially violent anti-American protests could sweep the region, possibly even prompting a re-think of U.S. foreign policy.”
Given that the gold price historically fares well during periods of political turmoil, Mubarak’s resignation and the resulting vacuum in power in the country may provide a short-term headwind for the price of gold. Furthermore, social unrest has been building in Algeria and Tunisia, and the prospect of turmoil spreading to Saudi Arabia and other countries in the Middle East has the potential to spark a surge in gold prices in coming weeks.
Coupled with the ongoing sovereign debt crisis in Europe and a Federal Reserve Chairman intent on keeping the printing presses running at full blast, the outlook for the gold price remains favorable despite the narrow trading range it has been locked in over the past few months. For the latest updates PRESS CTR + D or visit Stock Market news Today
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