Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold dropped 1% as positive economic data spurred risk appetite and dimmed gold�s safe haven appeal. U.S. manufacturing jumped in January, according to Markit�s preliminary Purchase Managers Index (or flash PMI), for its fastest growth in 22 months. The Conference Board�s index of leading economic indicators rose last month after a flat November. And U.S. jobless claims dropped unexpectedly to a five-week low last week. In optimistic signs overseas, factory output in China rose to its highest level in more than two years, and eurozone services and manufacturing sectors shrank less than expected. The dollar rose, pressuring the gold price, and the S&P 500 briefly topped 1,500 for the first time in five years before falling back. Silver fell 2.2% and platinum dipped 0.5% while palladium picked up 0.1%.

At the Comex close: February gold dropped $16.80 to $1,669.90; March silver lost 72 cents to $31.72; April platinum dipped $8 to $1,683.80; and March palladium picked up 50 cents, to $726.70 an ounce.

Today�s positive U.S. data caused gold to fall, in part, because it raised concerns that the Fed might reduce the duration of quantitative easing, its program of buying $85 billion in long-term U.S. Treasurys and mortgage-backed securities each month to stimulate growth and bring down unemployment. QE has helped gold to appreciate by more than 70% since its inception in 2008 because it devalues the dollar and increases the risk of long-term inflation. However, as Bloomberg reported today, there�s virtually no chance that the Fed will change policy when it meets next week. Unemployment at 7.8% is well above the Fed�s threshold of 6.5%, and inflation, at 1.4%, is far below its threshold of 2.5%.

While most analysts expect QE3 to continue for most of 2013, Morgan Stanley thinks it will go on even longer. In a report issued today, the banking behemoth said the FOMC is likely to continue asset purchases for up to two more years in order to buttress the recovery and ensure lower unemployment. As a result, gold prices will progressively climb this year, averaging $1,715 in the first quarter, $1,745 in the second, $1,800 in the third, and $1,830 in the fourth quarter. Increasing purchases by central banks will contribute to higher prices as governments attempt to diversify away from currency risk, according to the report.

At the World Economic Forum in Davos today, Alexei Ulyukayev, the Central Bank of Russia�s First Deputy Chairman, stated that Russia will continue its program of buying gold in order to shift its reserves from risky paper assets. Possessing the world�s fourth-largest gold reserves, the Bank of Russia bought more than 80 tonnes of gold last year and plans similar purchases in 2013.