Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold fell 1.6% to close at $1,230 as the dollar rallied on expectations of deeper monetary easing from the Bank of Japan when it meets next week. The metal slipped to a loss of 0.4% for the week.

The dollar gained 0.6% against a basket of major rivals and spiked to a two-week high against the yen as traders speculate that Europe and Japan will ease further in coming months while the Fed either stands pat or increases interest rates.

Yesterday, ECB chief Mario Draghi forcefully defended negative interest rates and quantitative easing against growing criticism from Germany, saying they will be necessary for a long time to support growth in the Eurozone. Draghi's comments caused the euro to tumble.

Today, the yen fell more than 2% on reports the BOJ may offer negative interest rate loans to financial institutions, effectively letting them get paid for being in debt, in order to weaken the yen and prevent deflation. The yen has gained more than 8% this year despite the BOJ's turn to negative rates on excess bank reserves.

While the Fed is almost certain to hold U.S. rates unchanged at next week's meeting, it has repeatedly signaled its intention to begin tightening sometime later this year despite moribund growth and low inflation. The differential between U.S. monetary policy and the relentless easing overseas has made the dollar relatively attractive to currency traders.

Historically, gold has risen amid negative interest rates as they undermine investor confidence in paper currencies and eliminate an opportunity cost for owning an asset that provides no yield.

In a potentially bullish development for precious metals, Chinese speculators are shifting their focus to commodities and raw materials as China's economy rebounds. Monetary easing by the PBOC created more than $1 trillion in new credit during Q1, and much of it is now flowing into commodities after last year's route in China's stock market.

The other precious metals were down for the day but higher for the week. Silver dropped 1.1% but held a weekly gain of 3.6%. Platinum fell 2% but gained 2.2% for the week. Palladium slid 0.6% today but surged 6.7% this week.

At the Comex close; June fell $20.30 to $1,230; May silver lost 19 cents to $16.90; July platinum dropped $20.70 to $1,011.20; and June palladium slid $3.85 to $606.20 an ounce.