Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold dropped 1.1% in technical trade, closing below $1,650 for the first time since early January, on reports that the Group of Seven nations are planning a joint statement to head-off a currency war. With easy monetary policies becoming standard procedure for governments trying to jump-start their economies and cheapen their exports, a 1930s-style currency war, in which nations race to devalue their currencies, has become more likely this year. The prospect has made financial markets nervous because competitive devaluations can undermine faith in fiat money, damage global trade, and increase the risk of runaway inflation.

While a joint statement from the G-7 might temporarily reassure the markets and support currencies like the dollar and euro, it is unlikely to have much effect on actual monetary policy. China, Japan, Europe, and the U.S. are all committed to easing for as long as needed. As a result, central banks have been purchasing gold in record quantities in order to diversify away from currency risk, especially in the dollar and euro. As CNBC reports, gold is one of the best ways to hedge against a currency war. Nonetheless, gold traders closed out positions ahead of the statement, expecting a rising dollar to pressure the gold price in the short term. Equities, commodities, and most precious metals weakened. Silver dropped 1.7% and platinum 1.2% while palladium gained 0.9%.

At the Comex close: April gold fell $17.80 to $1,649.10; March silver fell 53 cents to $30.91; April platinum dropped $18.60 to $1,696.10; and March palladium added $7.10, to $758.60 an ounce.

Gold was further pressured today, and the dollar supported, by deepening concerns that the eurozone recovery is off track. Data due out this week is expected to show that last quarter was the worst since early 2009. GDP is forecast to have shrunk by nearly half a percent, nearly 19 million people are unemployed, and at least seven nations are mired in recession.