Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold fell 3.6% to a 34-month low as renewed risk-appetite gripped the markets for a second day. The Dow and Global Dow gained more than 1%, extending a rally that began yesterday behind a spate of positive U.S. economic data. With prospects brightening for the recovery, and with no inflation on the horizon, traders liquidated safe haven assets like Treasury bonds and precious metals to pour cash into equities. Holdings in SPDR Gold Shares, the world's largest bullion-backed ETF, fell by more than 16 tons for its largest one-day drop in two months. The dollar also rallied, further pressuring metals and commodities. Silver tumbled 4.8% while platinum and palladium lost 3.5% and 5.3%, respectively. Platinum's close below $1,304 was is lowest since September 2009.

At the Comex close: August gold fell $45.30 to $1,229.80; July silver lost 94 cents to $18.59; July platinum shed $46.80 to $1,303.70; and September palladium tumbled $35.55 to $633.25 an ounce.

Gold's sentiment has been damaged by recent comments from Fed Chair Ben Bernanke that the Fed may taper quantitative easing this year and perhaps end it altogether next year�if the economy improves sufficiently. That's a big if. GDP for the first quarter was slashed today from 2.4% to a meager 1.8%, pulled down by much lower figures for consumer spending, which accounts for nearly 70% of GDP. The downward revision, ironically, helped to fuel today's risk-rally, giving traders the sense that the taper is now less likely to happen soon.

Despite improving data, the markets have over-reacted to Bernanke's comments, prompting regional Fed presidents to intervene. New York Fed President William Dudley said this week that the U.S. has fallen short of its employment and inflation objectives because monetary policy has not been accommodative enough. Minneapolis Fed President Narayana Kocherlakota reiterated that the bond-buying program should continue until unemployment falls below 7%, which he expects to be in late 2014. Formerly a critic of easing, he emphasized that monetary stimulus will continue long after the end of QE, whenever that might be.

The ECB also reaffirmed today that their loose money polices are here to stay "for the foreseeable future." Sooner or later, this ongoing flood of global liquidity will have inflationary ramifications for many currencies, spurring renewed demand for gold in its traditional role as inflation hedge.