Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold gained 0.5%, closing at an eight-month high above $1,783, as surprisingly strong manufacturing data and vocal support of QE3 by Fed officials weighed on the dollar. The ISM index of purchasing managers climbed from a three-year low in August to its highest level since May, indicating an expansion in U.S. manufacturing despite contraction in Europe and China. The Dow and S&P 500 gained on the report while the dollar and Treasuries fell as investors shifted toward risk assets. Gold hit an intraday price above $1,794, the highest since November 2011, before slipping back on profit-taking. Commodities also rallied, helping to pull the other precious metals higher. Silver led the way with gains of 1.1%, rising to its highest close since March, while sister metals platinum and palladium added 1% and 0.8%, respectively.

At the Comex close: December gold rallied $9.40 to $1,783.30; December silver jumped 38 to $34.95; January platinum added $16.50 to $1,685.80; and December palladium rose $4.80 to $645.60 an ounce.

Last week, Philadelphia Fed president Charles Plosser rattled the markets by slamming QE3 and disputing the Fed's pledge to extend near-zero interest rates through late 2015. His statement caused equity markets to fall, the dollar to rally, and gold to surrender 1% in gains as investors became confused over future policy. Today, Fed Chair Ben Bernanke and Chicago Fed president Charles Evans put confusion to rest with unequivocal support of continued, even expanded easing.

In a speech in Indiana, Bernanke reassured the markets that easing would continue until unemployment comes down, saying he wanted to "provide individuals, families, businesses, and financial markets greater confidence about the Fed's commitment to promote a sustainable recovery." Evans, appearing on CNBC, said QE3 should expand to $85 billion per month next year from its current commitment of $45 billion, and continue into 2014, in order to push unemployment under 7.5%. A voting Fed member next year, Evans is considered a strong voice on policy decisions.

Gold finished last quarter with an 11% gain, its strongest showing since the second quarter of 2010, after QE3 and similar measures by central banks in Japan, China, Europe and the U.K. caused demand to soar for gold as a long-term store of value. Today's statements by Bernanke and Evans should do much to continue the trend.