Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold fell 2.4% as strong U.S. jobs data raised fears that QE3 could be cut short. The new non-farms payrolls report showed employers adding substantially more workers than forecast. Payrolls expanded by more than 171,000 in October, and totals for August and September were revised higher by 84,000 jobs. Despite these gains, the unemployment rate ticked up slightly to 7.9% as more job-seekers entered the market. Because QE3 has been tied to lowering unemployment, the strong jobs data raised fears in the markets that the Fed might reduce the scope or duration of monetary easing, which has helped to fuel rallies in equities and commodities by vastly increasing liquidity and devaluing the dollar. Risk assets fell, with the Dow dropping more than 1% points and oil more than 2.4%, while the dollar rallied, pressuring gold to a weekly loss of 2.1%. Silver dropped 4.3% for the day and 3.7% for the week. Platinum lost 1.8% today and 0.1% this week. And palladium fell 2.1% today but finished the week with a 0.7% gain.

At the Comex close: December gold fell $40.30 to $1,675.20; December silver tumbled $1.39 to $30.86; January platinum lost $28.30 to $1,544.90; and December palladium dropped $12.80 to $599.65 an ounce.

Today's sell-off was something of a knee-jerk reaction. Fed officials have made it clear that QE3 is here to stay, and that ending it prematurely is the last thing they want to do. Earlier this week, Minneapolis Fed president Narayana Kocherlakota, an influential voice on policy, said that the Fed may need to ease further in order to stabilize prices and lower unemployment. In his view, QE3 and near-zero interest rates should continue until unemployment falls below 5.5%. The San Francisco Fed's John Williams said today the FOMC still has "substantial scope to use monetary policy to stimulate the economy without creating too much upward pressure on prices.� Williams, too, recently called for expanding QE3 to include direct purchases of Treasuries.

Bloomberg reports that gold traders are at their most bullish in ten weeks because of loose monetary policies around the world. Two-thirds of analysts surveyed expect higher gold prices next week, and holdings in gold-backed ETPs reached a record high of 2,588 metric tons yesterday. The Bank of Japan expanded its asset-buying program for the second time in two months; China is adding to stimulus by financing the construction of infrastructure; and the ECB is poised to begin its own versions of QE3 to combat the spreading eurozone debt crisis. So, despite today's anxiety, global monetary policies are expected to remain very loose for a long time to come, which should continue to drive demand for gold among governments, hedge funds, and individual investors as protection from currency depreciation.