Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— In its largest single-day percentage gain since June, gold surged more than 2.2% to a seven-month high after the Federal Reserve announced more quantitative easing (QE3). In this major new stimulus program, the Fed will buy an unlimited amount of agency mortgage-backed securities at the rate of $40 billion per month until it sees "substantial" improvement in the job market. QE3's surprising scope sent stock markets into euphoria, with the Dow gaining more than 200 points and the S&P 500 rallying to its highest close since 2007. Silver more than doubled gold's percentage gains by jumping 4.5%, while sister metals platinum and palladium gained 1.8% and 1.4%, respectively.

At the close: December gold surged $38.40 to $1,772.10; December silver leapt $1.49 to $34.78; October platinum gained $29.90 to $1,679.50; and December palladium added $9.70, to $689 an ounce.

QE3 is a serious game-changer. Unlike QE1 and QE2, which set limits in advance on bond purchases, QE3 will be open-ended and continue every month until unemployment drops to acceptable levels. If the job market doesn�t improve fast enough, according to the today's official statement, the Fed will "undertake additional asset purchases and employ other policy tools as appropriate." In addition, the Fed's pledge to keep interest rates near zero will be extended by at least another full year, through mid-2015. And Operation Twist, the Fed's program of extending the duration of short-term debt on its books, will also continue.

In other words, the Fed is pulling out all of the monetary stops, and that's extremely good news for gold. QE1 and QE2 helped to rally the gold price by more than 85% because they devalued the dollar and increased the risk of long-term inflation. With open-ended QE3, those fundamental drivers of higher gold will accelerate. Central banks around the world, already buying gold in record amounts in order to diversify away from dollar-risk, are likely to ramp up their gold-buying programs. Plus, negative real interest rates are certain to remain in place for several more years, causing gold to be more attractive than interest-bearing investments likes bonds and certificates of deposit for individual investors. All in all, a very good day for gold, one that's likely to result in new all-time nominal highs over $1,900 in the near future.