Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold rallied by 1.2% on safe-haven inflows after the Commerce Department reported that the U.S. economy contracted for its first quarterly loss since the recession in 2009. After growing by 3.1% in the third quarter, GDP shrank by 0.1% in the fourth quarter, driven lower by reduced military spending, reduced inventories, and weather-related issues. Although the contraction is expected to be temporary, the surprising weakness of the report drove traders to shed risk, pushing global equities lower and precious metals higher. Silver jumped 3.2% while platinum and palladium added 0.6% and 0.2%, respectively.

At the Comex close: April gold rallied $19.10 to $1,679.90; March silver jumped 99 cents to $32.18 ; April platinum added $10.40, to $1,689.30; and March palladium rose $1.65 to $751.40 an ounce.

Gold also received support from the FOMC's statement today that aggressive monetary policy will continue unabated. Acknowledging that growth has slowed, unemployment remains elevated, and inflation is running below expectation, the Fed said it will maintain open-ended quantitative easing and near-zero interest rates for the foreseeable future. Under this program, which has already added more than $3 trillion to its balance sheet, the Fed will buy $85 billion in Treasuries and mortgage-backed securities each month, effectively flooding the economy with liquidity until unemployment falls below 6.5% or inflation rises above 2.5%.

According to Bloomberg's most recent poll, most economists expect QE to continue into 2014 and near-zero interest rates for even longer. These policies weaken the dollar and support higher prices for gold, silver, and other commodities because they are denominated in dollars internationally, making them more less expensive to holders of other currencies when the dollar weakens. True to form, the dollar tumbled on today's Fed statement while S&P GSCI Index of commodities jumped to its highest level since September. Gold and silver are also seen as alternative stores of value and hedges against currency risk and inflation, both of which are increased by monetary easing.