Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold gained 0.2% on safe-haven inflows after deepening economic woes in Spain rekindled worries of eurozone debt contagion. Yields on Spanish bonds reached an unsustainable level above 7.2% despite the approval of a 100 billion euro bank bailout by eurozone finance ministers yesterday. Spain's unemployment remains stuck at 24% and GDP is now projected to contract in 2013. In addition, the sizeable region of Valencia has joined Catalonia in slipping toward bankruptcy and requesting a bailout from the government. Spanish stock markets suffered their second-largest drop in nearly four years and Italy, considered next in line for contagion, saw stocks drop nearly 5%. The Dow suffered a triple-digit loss while the dollar and U.S. Treasurys rose alongside gold in flights to safety. A rising dollar typically pressures the gold price. Silver followed gold higher, gaining 0.3%, while sister metals platinum and palladium, more heavily tied to industry, lost 0.6% and 1.5%, respectively.

At the close: August gold added $2.40 to $1,582.80; September silver gained 8 cents to $27.30; October platinum fell $8.60 to $1,414.50; and September palladium dropped $8.75 to $576.10 an ounce.

Today's gold market was also supported by news that Russia is again adding to its gold reserves. The Russian central bank reportedly purchased 6.2 tons of gold in June, raising its reserves to more than 836 tons. Central banks have been a consistent support for gold over the last two years, a trend that's expected to continue as they diversify away from currency risk in the dollar and euro.

Last year, according to World Gold Council data, central banks added a record 400 tons to reserves and are expected to exceed that amount this year. Russia, China, and India lead the way. According to a recent study published by VOX and the Center for Economic Policy Research, the top four gold-holding nations�U.S., Germany, Italy, and France�all hold more than 73% of reserves in gold. China, however, has only 1.8%, Russia 9.6%, and India 10% in gold. So, we should continue to see purchases by central banks, especially in emergent market nations like Russia, putting a solid floor under gold prices.

The World Gold Council just released its quarterly Investment Statistics Commentary. The WGC projects increasing global demand for gold in the second half of 2012 for three main reasons: deflationary concerns leading to further monetary and fiscal stimulus that will increase inflation risk; the need for diversification away from eurozone debt risk; and the need to hedge against structural weaknesses in the dollar including the $1.3 trillion U.S. budget deficit. The commentary concludes that, despite its recent price-pressures, gold's "lack of credit risk, liquidity, and hedging characteristics" will continue to make it "an attractive vehicle for long-term wealth preservation."