Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold fell 0.7% to a one-month low after the Consumer Price Index dropped in April to its lowest level since November 2010. The core inflation rate, which exclude volatile food and energy prices, rose a scant 0.1%. Consumer inflation is now running at merely 1.1% annually, far below the Fed's target rate of 2% to 2.5%, which gives the central bank plenty of room to maintain or increase its bond-buying program known as quantitative easing. In the long term, QE supports higher gold prices because it devalues the dollar and increases the risk of inflation. But in the short term, diminished need for inflation-protection among investors is likely to pressure gold prices further. Silver finished flat and platinum dropped 0.3% while palladium rallied 1.6% on supply concerns because of the Lonmin mining strike in South Africa.

At the Comex close: June gold dropped $9.30 to $1,386.90; July finished unchanged at $22.66; July platinum slipped $5.10 to $1,485.60; and June palladium rallied $11.70 to $740.75 an ounce.

The World Gold Council published its Gold Demand Trends for Q1. Overall gold demand dropped by 13% in the first three months of the year, driven by liquidations in the paper gold markets, mainly in the U.S. However, demand for physical gold bullion among consumers and investors rose substantially around the world, especially in Asia. Global sales of gold coins increased 19% and gold bars 8.1% compared to a year earlier. Total consumption in China surged by 20% to reach 295 tons, with demand for coins and bars increasing by 22%. Indians bought more than 256 tons of gold, a 27% increase. These up-trends are expected to continue.

Central banks were also big buyers, adding almost 110 tons of gold to their currency reserves. The WGC expects them to buy as much as 550 tons this year after buying 534 tons last year, 17% more than in 2011. Continued monetary easing in the world's largest economies is expected to drive central banks to diversify their currency reserves further and hedge against long-term inflation with more gold purchases.