Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold gained 0.2% after Moody's Investor Services warned that the U.S. could lose its AAA debt rating if Congress fails to pass a budget decreasing the nation's debt. The policy-mix is less important, Moody's said, than the establishment of a credible plan ahead of the so-called "fiscal cliff" in early 2013, when an array of damaging cuts and taxes will be triggered automatically. The dollar promptly dropped to a four-month low on the warning. Silver dipped 0.2% while platinum and palladium gained 0.2% and 0.3%, respectively.

At the close: December gold gained $3.10 to $1,734.90; December silver dropped 7 cents to $33.57; October platinum added $3.20, to $1,607; and December palladium rose $2.15 to $674.90 an ounce.

Gold continues to be supported by rising prospects for monetary stimulus on both sides of the Atlantic. After last Friday's anemic jobs report, the Fed is expected to announce another round of quantitative easing (QE3), perhaps as early as this Thursday. The ECB recently announced its own plan to buy the short-term bonds of beleaguered eurozone nations, promising to "sterilize" its purchases, or neutralize their inflationary potential, by selling an offsetting amount of assets from its balance sheet. But many analysts see this so-called sterilization as an accounting shell-game that merely shifts the old assets while keeping them on the books, effectively monetizing them like quantitative easing. Zero Hedge says $560 billion in new QE from the Fed is being priced into the market, but the total will probably be more like $850 billion in order to debase the dollar as much as the euro will be debased by the new ECB plan. Otherwise, U.S. exports would be overpriced and the recovery would suffer.

Both of these programs would expand money supplies and increase the risk of inflation. As a long-term store of value, gold does best in these kinds of scenarios. Driven by QE expectations, speculators have raised their net-long positions in gold futures to the highest level in more than six months, according to Reuters, and holdings in gold-backed ETFs are at an all-time high. Commerzbank is now calling for gold prices above $1,900 by early 2013. Gold gained by more than 85% during QE1 and QE2.