Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold dropped 0.5% after softer U.S. economic data boosted the dollar. The number of Americans filing jobless claims spiked higher last week, reversing declines from the week before. Although manufacturing the Philadelphia Fed region rose dramatically last month, far surpassing expectations, the details of the October report were far less positive, indicating weakness in new orders and employment. And eroding corporate earnings cast a pall on Wall Street as more than half of S&P 500 firms missed revenue forecasts. Meanwhile, renewed conflict between Germany and France over solutions to the eurozone debt crisis also boosted the dollar and weighed on gold and commodities. Silver dropped 1.1% while platinum and palladium fell 1.6% and 1%, respectively

At the Comex close: December gold dropped $8.30 to $1,744.70; December silver lost 36 cents to $32.87; January platinum slid $26.80 to $1,643.70; and December palladium shed $6.20 to $647.20 an ounce.

The World Gold Council published its Investment Statistics and Commentary for Q3 today. Gold rose 11.1% from July through September with decreased volatility, according to the report, because of continuing "unconventional monetary policy programs" from central banks around the world. The WGC sees four principal factors supporting the investment case for gold going forward: as a hedge against inflation risk; as a diversifier against precipitous falls in equity and credit markets (tail risk); as a hedge against currency debasement; and to secure savings against negative real interest rates. The report concludes: "The backdrop of negative real yields, a slow recovery and a likely continuation of expansionary monetary policies � with all the risks these present � provides further support to the long-term strategic investment case for gold."

Zero Hedge looked at the current "gold coverage ratio," which measures the amount of gold on deposit at the Federal Reserve against the total money supply, and found it to be at an all-time low of just 17%. Twice in 20th Century, this ratio has risen to 100%, meaning the entire monetary base was backed by the value of U.S. gold holdings. It happened during the Great Depression, after the 1934 Reserve Act revalued gold to $35 an ounce; and again in 1980, when gold exploded to $830 an ounce, which is around $2,300 in today's dollars. The historical average for the gold coverage ratio is 40%. By merely reverting to the historical average, gold would more than double from today's prices. To return to 100% coverage, gold would rise to $12,000 an ounce. In essence, ZH concludes, today's gold prices are artificially low by historical standards.