Daily Gold Update

Source: American Gold Exchange

Austin— Gold climbed for the third straight session to a one-month high today as the dollar fell to its lowest level in a week and the euro rallied after ECB President Mario Draghi, while leaving the door open to further cuts in interest rates, did not mention more quantitative easing. Gold has gained around 6% so far in 2012. At the Comex close: February gold climbed $8.10 to $1,647.70; March silver rose 23 cents to $30.12; April platinum gained $2.40 to $1,500.10; and March palladium fell $4.40 to $641.25 an ounce.

The ECB is keeping interest rates at 1% for now, and although Draghi voiced concerns that eurozone economies face huge headwinds, he did not immediately call for more easing, which lent the euro some much-needed support and helped to send gold higher as the dollar fell. While the ECB has not committed as much capital to monetary easing as the Fed, its balance sheet has grown by nearly 730 billion euros since last August through bond purchases. These actions are just beginning to take effect, increasing liquidity slightly and reassuring investors somewhat that struggling members like Spain and Italy will remain solvent at least for another month. In their monthly debt auctions today, both nations were able to lower their borrowing costs, and Spain sold almost twice the amount of debt expected, which are positive signs.

But the ability of Europe to meet its ongoing funding needs remains very much in doubt, a fact should prove bullish for gold in 2012. Eurozone nations will need to borrow in excess of $1 trillion in 2012 just to replace existing debt and meet budget deficits. Every month will bring new debt auctions that might or might not cover the notes, at rates that could suddenly become exorbitant. The ECB has to maintain a firewall to prevent debt contagion from sweeping over the continent in the event that any of these auctions fail. So while more quantitative easing cannot necessarily be expected, it lurks just out of sight, and that is likely to lead to higher gold prices both from safe-haven inflows and the risk of higher inflation through currency devaluation. "We see the problems in the U.S. and Europe being solved with the printing of money," says Malcom Gissen, co-manager of the Encompass Fund, "and when you do that you inflate your currency and drive people to be buying gold."

Gold demand in Asia continues to be quite strong, with premiums on gold bars in Hong Kong and Singapore now at their highest since last October. And demand for gold in Iran has become so fierce that Iran's central bank will raise rates on bank deposit to more than 20% in order to control volatility in the gold and currency markets. As international sanctions tighten, Iranians are flooding into gold and dollars, causing the rial to plummet.