Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold traded almost flat, dipping slightly but remaining above $1,770, as dismal new data on global growth caused investors to shed risk. China's factory index contracted for the eleventh straight month, although at a slower rate than in August, while inventories continued to stockpile from lack of demand. The eurozone's PMI, a measure of manufacturing health, fell again in September, dropping to its lowest reading since June 2009. And manufacturing in the Philadelphia Fed region shrank for the fifth consecutive month. Global equities retreated on the news while U.S. Treasuries and the dollar rallied behind safe-haven demand. In light of today's risk aversion and rising dollar, the fact that gold avoided profit-taking from its recent rally is a solid sign of support. Silver rallied by 0.3% while platinum and palladium continued their post-strike corrections, dropping 1% and 1.8%, respectively.

At the close: December gold dipped $1.50 to $1,770.20; December silver added 9 cents, to $34.68; October platinum dropped $16.50 to $1,623.90; and December palladium lost $11.95 to $661.10 an ounce.

After some six weeks of relative calm, while Europe vacationed and the ECB promised to backstop its failing banks, deep problems in the eurozone are beginning to spook the markets again. Fearing a loss of fiscal sovereignty, Germany is now seeking to dilute the pan-European bank supervision on which the ECB's new program to save the euro depends. In the mean time, bad loans in Spanish banks have risen to a record-high of 9.9%, deposits are falling sharply, and liquidity is drying up. Aggregate money-supply (M2) has contracted by 6.3% in Spain, 6.1% in Portugal, and whopping 15% in Greece, year-over-year. Yesterday, Citi chief economist Willem Buiter warned clients that Greece is now more likely than ever to leave the euro. While the so-called troika (ECB, IMF, EU) might see a Greek exit as less damaging now than a year ago, it would still send seismic shockwave through global markets and increase the flight of capital out of the eurozone. Given the lousy fundamentals of the post-QE3 dollar, gold demand in the region would likely spike higher as investors take shelter.