Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold gained 1% on safe-haven inflows as the eurozone banking crisis grew more ominous. With the euro sinking to its lowest point since June 2010, the dollar and gold gained together for the third session out of four, breaking their typical negative correlation. Adding to risk-off sentiment, an index of pending U.S. home sales fell in April for the first time in four months, dropping 5.5% and raising more questions about the strength of the U.S. recovery. The Dow lost 160 points and the global Dow dropped 1.7% while Treasury prices jumped again, pushing yields to record lows. Silver added 0.7%, palladium gained 0.1%, and platinum lost 1.9%.

At the close: August gold rose $14.70 to $1,565.70; July silver gained 19 cents to $27.98; July platinum lost $26.90 to $1,401.20; and September palladium added 45 cents to $606.50 an ounce.

Today's flight to safety came as conditions in Italy and Spain, the eurozone�s third- and fourth-largest economies, deteriorated further. Following yesterday's downgrade of Spanish banks by Egan-Jones, yields on Spanish bonds have risen to unsustainable levels near their all-time high. In addition, today's Italian debt auction fell short of expectations and raised its benchmark borrowing costs above 6% for the first time since January. Fears of eurozone contagion and a possible breakup are on the rise.

The dollar has been the main recipient of safe-haven inflows for much of this year but that might be changing. With Treasury yields at all-time lows and U.S. economic data softening, investors are starting to see gold as a better option for safety with upside potential. Today's strong rally off intraday lows around $1,530, despite a rising dollar and falling risk-assets, showed sentiment returning. Morgan Stanley is now forecasting gold prices averaging $1,825 this year and $2,175 in 2013�that's around 20% and 40% higher than today's, respectively.