Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold fell 1.8% as fears grow about Greece's possible exit from the eurozone and investors seek the relative safety of the U.S. dollar. The euro plummeted to a 22-month low and the U.S. dollar index rose to its highest level since September 2010. The global Dow and oil tumbled while the other precious metals fell harder than gold, with silver down 2.3%, platinum 3%, and palladium 4%.

At the close: June gold dropped $28.20 to $1,548.40; July silver lost 66 cents to $27.52; July platinum shed 44.30 to $1,414.10; and June palladium tumbled $24.45 to $591.10 an ounce.

The euro sell-off began after Greek Prime Minister Lucas Papademos said yesterday that plans should be laid for Greece's departure from the euro. Although he tried to retract the comments, senior eurozone officials reiterated them today, advising that each country in the EU should prepare a contingency plan, individually, for the consequences of a Greek exit. Eurozone leaders are meeting in Brussels to hammer out a plan for containing the crisis, including the creation of a eurozone bonds to pool the risk of refinancing insolvent banks in Greece and other struggling member nations. But Germany, with the strongest economy in the union and the last with perfect credit, has ruled them out. Most economists believe a Greek exit will be catastrophic for Greece and the rest of the EU. Chinese investment bank CICC said China's GDP growth could slow to 6.4% if Greece leaves the euro, according to Sharps Pixley, which would put a severe crimp in the global economic recovery.

For the time being, the dollar is king�despite its own fundamental problems. Because of gold's negative correlation to the dollar, weakness in the gold price could persist until some resolution comes in Europe. At that point, negative real interest rates in the U.S., which mean inflation-induced losses for dollar holdings, are likely to drive inflows back into bullion and rally the gold price.