Daily Gold Update

Source: American Gold Exchange

Austin— Gold gained 0.2% today and silver jumped 1.2% as bargain hunting and mild safe-haven inflows returned. Equities traded mostly lower, still digesting yesterday's news about the slowdown in China and largely ignoring positive data on existing home sales. Gold and the dollar both gained after Ben Bernanke warned the House Oversight Committee that the eurozone debt crisis is not over and the risk of contagion remains. Gold typically trades inversely to the dollar because it's denominated in dollars, which makes it more expensive when the dollar loses value. When the two rise in tandem it often indicates a flight to safety away from risk. Platinum and palladium, more traditionally commodity assets, fell 0.8% and 1.2%, respectively.

At the close: April gold gained $3.30 to $1,650.30; May silver added 39 cents to $32.23; April platinum fell $13.90 to $1,640.40; and June palladium lost $8.40 to $688.65 an ounce.

Today's testimony by the Fed chair reminded investors that Greece's narrow avoidance of a messy default does not mean all is well, despite the ECB's pouring of $1 trillion into the European banking system. Spain looks increasingly like the next nation to falter. The fourth largest economy in the eurozone, it's now entering its second recession in three years and its public debt recently surged to the highest level in twenty years. "Spain is the key country about which I�m most worried," said Willem Buiter, Citigroup's chief economist, in a Bloomberg radio interview today. �It�s really moved to the wrong side of the spectrum and is now at greater risk of sovereign restructuring than ever before.�

Indeed, Spain's budget deficit is the fourth largest in the region and will again exceed the austerity target set by the EU. And yield on 10-year Spanish debt rose to its highest level in a month yesterday, which means fewer buyers are willing to take on the risk. But that's not the extent of the eurozone problems. �The Greek sovereign is by no means on a sustainable path so they will have to restructure again,� Buiter added in the Bloomberg interview, and Portugal is at "very high" risk.

If these sovereign debt risks deepen, and it looks like they will, we'd expect demand for gold to build. As we've said before, it sometimes trades as a commodity and at other times as a safe haven currency. When the threat of imminent Greek default subsided last month, gold's commodity role took over and it began tracking with risk assets. With today's tandem rise of gold and the dollar we could be seeing its traditional role as safe haven coming back into play.