Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold rallied for a third session, jumping another 1.3% to close at a two-month high near $1,192, as global equities tumbled again on geopolitical tensions and China's economic slump. The metal then pushed higher in electronic trade, reaching $1,195 after the minutes from the Fed's last meeting showed growing concern about low inflation.

Equity markets fell for a fifth day, with the Dow dropping more than 1.5% and the Global Dow 1.1%, after China further devalued the yuan, fueling fears that its economy may be even weaker than thought. The Shanghai Exchange plunged 7% on Monday, forcing a suspension of trading, after Chinese manufacturing reportedly contracted for the tenth straight month.

Equities were also undermined by North Korea's announcement that it successfully tested its first hydrogen bomb. In conjunction with the deepening crisis between Iran and Saudi Arabia over the beheading of a renowned Shiite cleric, the news prompted investor to shed risk in favor of safe havens like gold and U.S. Treasury bonds. Treasury yields declined to their lowest levels in nearly four weeks.

Gold was further supported by a weaker dollar after the Fed's minutes suggested that low inflation might prevent future rate increases. Voicing resistance to the December hike, several members highlighted "significant concern about still-low readings on actual inflation and the uncertainty and risks present in the inflation outlook." Core inflation is running at just 1.3%, well under the Fed's target of 2%, while a recent update of the Fed's model suggests even weaker inflation over the next six months.

The other precious metals were mixed, with silver edging up slightly while platinum and palladium lost 1.7% and a whopping 5.7%, respectively.

At the Comex close: February gold jumped $13.50 to $1,091.90; March silver added less than a penny, to $13.98; April platinum dropped $15 to $875; and March palladium lost $30.70 to $505.05 an ounce.