Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold gained 0.4% to close above $1,615 after ECB president Mario Drahgi pledged to do "whatever it takes" to save the euro. The markets expect the central bank to resume bond purchases and begin other forms of monetary easing to drive down interest rates, increase liquidity, and stimulate growth. Combined with the growing belief that the Federal Reserve, too, will soon announce additional easing, Drahgi's comments stoked a risk-rally driving the Dow up 200 points and the Global Dow up 2%. The euro rallied the most in a month while the dollar index fell nearly 1%, helping to push gold higher. Platinum and palladium rose 0.4% and 0.8%, respectively, while silver edged down 0.1%

At the close: August gold gained $7 to $1,615.10; September silver slipped 2 cents to $27.45; October platinum added $6.20 to $1,405.60; and September palladium rallied $4.65 to $569.90 an ounce.

Joining a growing chorus, Bank of America now thinks more U.S. easing is just around the corner. Chief strategist Priya Misra said she expects the Fed to extend near-zero interest rates for another year, from late-2014 to late-2015, at the FOMC meeting on August 1. In addition, she sees the Fed announcing another round of quantitative easing (QE3) at its meeting in mid-September. In scope and duration, according to Misra, QE3 will look a lot like QE2, with purchases of another $600 billion in long-term Treasurys and mortgage-backed securities.

Both of these easing strategies will be bullish for gold. Extending near-zero interest rates all but guarantees negative real interest rates�that is, interest rates below inflation�for several more years, at least. As long as nominal rates are below the rate of inflation, gold is attractive as a safe-haven store of wealth because bonds and other interest-bearing investments lose money in real terms. Gold, on the other hand, does best in this environment. In addition, QE3 is bullish for gold because it devalues the dollar and increases long-term inflation risk, also stimulating demand for gold as a safe-haven store of value.