Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold finished nearly flat, dipping 0.1% to close a volatile session as the markets struggled to anticipate tomorrow's direction from the Federal Reserve. Widely expected to announce another round of quantitative easing, the Fed nonetheless has a history of promising much while delivering little, which prompted speculators to hedge their recent bullish bets. Gold added 3.1% and silver 7.2% last week, largely on easing hopes, before profit-taking and repositioning during the last two sessions. Platinum jumped to a five-month high, rising 2.7% today after machete-wielding strikers shut down mining operations in South Africa. Used in catalytic converters, platinum has rallied around 20% since violent strikes broke out last month, but these gains are expected to last only until normal mining production resumes. Silver fell 0.8% while palladium gained 0.7%.

At the close: December gold slipped $1.20 to $1,733.70; December silver dropped 27 cents to $33.29; October platinum jumped $42.60 to $1,649.60; and December palladium rose $4.40 to $679.30 an ounce.

Gold received support today from the long-awaited ruling by Germany's high court to allow Berlin to contribute to the European Stability Mechanism, the eurozone's permanent bailout fund. The decision strengthens the viability of the euro and clears the way for the ECB to begin its new program of buying the short-term government bonds of struggling eurozone nations. As we discussed yesterday, this ECB program is tantamount to quantitative easing, which supports higher gold prices through currency debasement and increasing long-term inflation risk.

On this side of the pond, almost two-thirds of economists polled by Bloomberg expect the Fed to announce QE3 tomorrow, in addition to extending its policy of near-zero interest rates into 2015. Most predict the Fed will buy around $300 billion in Treasuries and $400 billion in mortgage debt. However, several members of the FOMC have called for an open-ended program of buying long-term debt (basically, printing money) until unemployment falls to acceptable levels. These policy actions would be extremely bullish for gold and could drive it to new nominal highs over $1,900 this year. QE1 and QE2 helped gold to rally by more than 85%.