Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold gained 1.2% after a better-than-expected jobs report weakened the dollar and strengthened appetite for risk. U.S. non-farms payrolls added 163,000 jobs in July, easily beating consensus forecasts of around 100,000 and prompting investors to shift from safe-haven dollars into assets with higher expected returns like stocks, commodities, and precious metals. Optimism was also fueled by a slightly higher ISM services reading and hints that Spain will receive a sovereign bailout from the ECB.The dollar index tumbled nearly 1.2% while the Dow surged 225 points and oil gained nearly 5%. The other precious metals outpaced gold, with silver rallying 3%, platinum 1.8%, and palladium 1.9%.

At the close: December gold gained $18.60 to $1,609.30; September silver surged 81 cents to $27.80; October platinum rose $26.60 to $1,414.40; and September palladium added $10.35 to $578.20 an ounce.

While the markets clearly savored today's payrolls report, some of the overlooked details were far from appetizing. Gluskin Sheff's David Rosenberg points out that this report was actually a disappointment for several reasons. The total number of jobs added was still well below the 220,000 per month that is normal at this stage in a recovery. Jobs were added in fairly narrow slices of the economy rather than across a breadth of industries, indicating a lack of fundamental strength. And the unemployment rate actually increased to 8.3%, with the broader U6 unemployment rate, which adds in underemployment, rising to 15%.

So, while it was a pleasant surprise, today's jobs report probably does little to diminish the odds of more monetary easing from the Fed. Bank of America's Michelle Meyer thinks "the Fed will still push out its forward guidance at the next meeting from late-2014 to late-2015" and QE3 could still come later in the year if unemployment stays high. Indeed, as Bloomberg reports, the rising unemployment rate is what the Fed is likely to focus upon in their next meeting, so gold traders are positioning for more stimulus to come. Extending near-zero interest rates until late-2015 all but guarantees negative real interest rates�that is, interest rates below inflation�for several more years, making gold more attractive than bonds and other interest-bearing investments. And QE3 is bullish for gold because it devalues the dollar and increases long-term inflation risk, stimulating demand for gold as a safe-haven store of value.