Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold fell 1.1% to finish just under $1,132, its lowest close since 2010, as firming inflation and housing data boosted the case for a September rate hike from the Fed, cutting into demand for alternative assets. The size of the plunge was attributed in part to a single, huge sell-order triggering technical stops. The metal finished the week down 2.3%

The Consumer Price Index rose for the fifth straight month, albeit slowly, picking up 0.3% in June after increasing 0.4% in April. Following yesterday's report of higher wholesale prices, the data suggests inflation is drifting toward the Fed's target of 2%, a precondition for tighter monetary policy. In addition, housing starts soared last month and the number of building permits spiked to an 8-year high, providing further evidence that the recovery may be ready for higher rates.

On the negative side of the ledger, flat wages and rising inflation caused real wages�adjusted for inflation�to fall by 0.4% in June. Fed Chair Janet Yellen has repeatedly said weakness in nominal and real wages is a reason to proceed with caution in raising rates. Fed Vice Chair Stanley Fischer said today that inflation remains too low to raise rates. Meanwhile, consumer sentiment fell in July by more than expected, according to the University of Michigan survey.

According to the latest Bank of America/Merrill Lynch survey, the world's largest money managers have turned bullish on gold for the first time since 2009, just before the big run-up above $1,900 an ounce. The combination of economic weakness in China and turmoil in Europe have increased gold's safe-haven appeal while the lowest prices in five years have made it undervalued, according to the survey.

China published its official gold reserves for the first time since 2009�to widespread skepticism. According to the report, the PBOC increased its holdings by 57% to 1,658 tonnes in the past six years. Many analysts put the real figure closer to 3,000 tonnes, with the discrepancy attributed to China's desire to protect the value of its massive dollar holdings while seeking to promote its own currency for international trade by backing it with gold. Notoriously secretive about its reserves, China does not report its holdings to the IMF each month like other countries.

The other precious metals were also down on the day and week. Silver dropped 1% today and 4.2% this week. Platinum also dropped 1% for a weekly loss of 3%. Palladium surrendered 2.1% on the day and 4.8% on the week.

At the Comex close: August delivery gold fell $12 to $1,131.90; September silver dropped 15 cents to $14.83; October platinum slid $10.30 to $1,001.30; and September palladium gave up $12.95 to $619 an ounce.