Gold opened above $1,200.00 per ounce this morning before dropping below that magic number again as the day progressed. SPDR Gold Shares ETF (NYSE:GLD) is pretty much flat, opening at $118.49 and now trading at $118.38. The story is pretty much identical for the iShares COMEX Gold Trust ETF (NYSE:IAU).

The Market Vectors Gold Miners ETF (NYSE:GDX) is also about flat this so far today, reflecting perhaps the sort of lukewarm reports from three miners this morning. Iamgold Corp. (NYSE:IAG) reported EPS for the first quarter of $0.16, higher than analysts’ expectations of $0.13. Revenues were up 27% from the same period a year ago, to $240.1 million, well above estimates of $218.72 million.

The other side of the gold coin is Gold Fields Ltd. (NYSE:GFI) which reported EPS of $0.45, substantially weaker than estimates of $0.67 and down more than two-thirds from the same period a year ago. AngloGold Ashanti Ltd. (NYSE:AU) also reported weaker-than-expected earnings today, with EPS of $0.17 compared with estimates of $0.24.

Production problems and rising production costs have troubled the gold miners for the past quarter, but the rising price of gold has mitigated that performance somewhat.

Now, though, it seems to be anybody’s guess what will happen to the price of gold, primarily due to the problems in Greece and with the stability of the euro. Gold is rising now, and there is a difference of opinion about which way it’s actually headed.

An analyst at Barclays Wealth believes that adjusted to account for monetary policy, the fair price of gold is about $800/oz. That’s a far cry from another analyst who predicts that gold will rise to $3,000/oz.

Neither prediction gives a time frame, but where they differ is over whether deflation will continue or whether inflation will begin rising. A deflationary track would keep the price of gold high, especially as the euro continues its slide against the dollar. The uncertainty surrounding the loan to Greece and, worse, a possible larger loan to Spain are leading to a crisis of confidence in the EU to manage its problems.

The case for shorting gold rests on the belief that a “fear premium” was built into the market after the collapse of Lehman Brothers, and once that comes out of the market gold prices will collapse.

The direction gold is headed depends to some extent on whether one is an optimist or a pessimist about the EU’s ability to solve its latest round of economic problems. As the sergeant on ‘Hill Street Blues’ used to caution, “Be careful out there.”

Paul Ausick

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