Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold dropped 1%, tracking most assets lower after the ECB refrained from taking action to ameliorate Europe's sovereign debt crisis. One week after promising to do "whatever is required" to save the euro, European Central Bank president Mario Drahgi surprised the markets by doing nothing at this week's ECB meeting in Frankfurt. While suggesting that the ECB may yet intervene in bond markets to bring down borrowing costs, Drahgi deferred to struggling eurozone governments, saying they must activate existing bailout mechanism before the ECB would act. The U.S. dollars and Treasurys rallied on the news, adding to pressure on the gold price. Silver fell 2% while sister metals platinum and palladium lost 1% and 2.5%, respectively.

At the close: December gold dropped $16.60 to $1,590.70. September silver fell 54 cents to $27; October platinum lost $13.50 to $1,387.80; and September palladium retreated $14.75 to $567.85 an ounce.

In contrast to yesterday's inaction by the Federal Reserve, which was largely shrugged off by the markets, today's ECB shocker generated a palpable ripple of fear. Spanish and Italian bond yields, which had fallen on hopes of ECB action, promptly jumped back to unsustainable levels above 7%. The Dow tumbled nearly 100 points and the Global Dow lost more than 1%.

Analysts are already saying that this week's punts by the Fed and ECB have set up a coordinated policy action for early September, following the annual economic policy meeting set for late August. Greg Anderson, a G-10 strategist for Citi, told Marketwatch, �It�s entirely possible when they all sit down together in Jackson Hole at the end of August that an agreement will be made to do something in September." He added, �It�s sort of an empty vacuum in August where nobody speaks until Bernanke speaks at Jackson Hole.�

Jeffries economist David Zervos believes both Bernanke and Drahgi actually did much this week to prepare the markets for further expansionary policies to come. As reported by Business Insider, Zervos told clients in a note today: "To be sure, there were no 'tangible' preemptive strikes, but the Fed and ECB laid out very clear plans for the rest of the year. Importantly, the Fed is as close as it was in late 2010 to delivering more accommodation." Tomorrow's non-farms payrolls report should give a good indication. The consensus estimate is 100,000 jobs were added in July. If the number comes in lower, pressure will certainly rise for QE3 in September.