Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold jumped 2.2% to close above $1,247 for its biggest one-day gain in nearly two months. After sliding 2.4% in the last two sessions on speculation that the Fed may begin to taper quantitative easing later this month, the metal was seen by traders as strongly over-sold. Bargain-hunting and a short-covering rally drove prices briefly above resistance at $1,250 during intra-day trade before they settled back for a gain of more than $26 per ounce on the day.

Gold's rally was especially impressive against a backdrop of upbeat employment data and falling Treasury prices, both of which tilt toward a December taper. ADP reported that U.S. companies added 215,000 jobs last month, the most in a year. Treasury prices dropped on the jobs data, pushing yields to an 11-month high as traders prepare for tomorrow's release of the government's non-farms payroll report. The Fed has repeatedly linked changes in its bond-buying program to improvements in the labor market.

Gold investors received some positive news from the Cleveland Fed. In research published today, the regional central bank concluded that interest rates should be pegged to an "inflation floor" of between 1.75% and 2%. Previously, the Fed has pledged to maintain near-zero rates until unemployment falls below 6.5% or inflation rises to 2.5%. This dual-criterion has made businesses and investors nervous because rates could increase with little warning, creating a drag on the recovery. The "inflation floor" approach removes one variable and all but guarantees near-zero rates�and, therefore, negative real rates�until late 2016 or even 2017. Negative real interest rates (or rates below inflation) support higher gold prices by eliminating the opportunity costs of owning gold, which pays no interest itself, and increasing demand for alternative stores of value to hedge against inflation.

U.S. and global stock indexes fell for a fourth straight day on Fed taper worries while oil and other commodities rose. Silver rallied 4% while platinum and palladium gained 1.5% and 2%, respectively.

At the Comex close: February gold jumped $26.40 to $1,247.20; March rallied nearly 77 cents to $19.83; January platinum rose $20.20 to $1,376; and March palladium gained $14.45 to $729.25 an ounce.