Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold inched up 0.1% despite a rising dollar as worries about China and Spain pushed investors into safe havens. A wave of anti-Japanese protests in China over disputed territories prompted several Japanese firms to suspend operations, dragging down global equities for a second day. In addition, bad loans at Spanish banks hit a new record while deposits from individuals and companies continue to plummet, renewing concerns about Spain's solvency. Treasuries, the dollar, and gold all gathered inflows on flights to quality, although gold's gains were muted by the rising dollar. Silver added 1% while platinum and palladium traded sharply lower, dropping 2.2% and 3.2%, respectively, after news that South Africa's Lonmin Mine is coming to terms with strikers.

At the close: December gold added 60 cents to $1,771.20; December silver gained 35 cents to $34.72; October platinum fell $36.30 to $1,636.30; and December palladium dropped $21.75 to $667.35 an ounce. Fed

The risk of long-term inflation is growing after the Fed's announcement of an aggressive new round of quantitative easing (QE3). Yesterday, bond investors drove a key measure of inflation expectations, the so-called "break-even rate" between nominal and inflation-protected Treasury bonds, to its highest level since 2006. When QE1 and QE2 occurred, the break-even rate was much lower because deflation was the primary threat to the economy. This time, with inflation already rising, the Fed is using QE to combat unemployment rather than deflation. Worries about the inflationary consequences of additional monetary easing have been pushed to the background. Indeed, Fed Chair Ben Bernanke telegraphed that he's willing to tolerate much higher inflation in the short term if it puts Americans back to work. This week's spike in the break-even rate is evidence that the first part his message–higher inflation–is already being priced into the bond markets. While that might be bad news for our wallets, it's good news for gold, which has typically done best during periods of rising inflation.