Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold fell 1.1% to $1,258, its lowest close since mid-July, as a stronger dollar diminished its allure as an alternative store of value. The metal then plunged as low as $1,241 in after-hours trade immediately following the release of minutes from the recent FOMC meeting, in which the central bankers appeared eager to reduce monetary stimulus in coming months.

The dollar rose strongly against the euro after the ECB said it may consider forcing the bank deposit rate into negative territory for the first time. With inflation falling to 0.7% across the eurozone and the recovery stalling, the ECB is looking for new ways to force liquidity into the region's economy, including the adoption of Fed-style quantitative easing. The policy shift comes just as the Fed itself is preparing to reduce easing, making the dollar relatively attractive to currency traders. A rising dollar weighs on gold and other commodities priced in dollars internationally by making them more expensive to holders of other currencies.

Gold sentiment was already weak after reports that U.S. consumer prices declines in October for the first time in six months, reducing demand for the metal as an inflation hedge. Comex had to cease trading operation twice this morning for ten seconds after massive sell orders triggered the exchange's Stop-Logic protection system. The Fed minutes then delivered the coup de grace, knocking the gold price through major support at $1,250 by empasizing that "the committee could decide to slow the pace of purchases at one of its next few meetings."

The view that the taper is coming sooner than hoped was reinforced in separate comments today by Fed Chair Ben Bernanke and St. Louis Fed President James Bullard, who told Bloomberg TV that the taper is "definitely on the table" for December, depending on the data. Tantamount to printing money, QE has supported higher gold and equities prices by devaluing the dollar and increasing the risk of long-term inflation.

U.S. equities also tumbled on the Fed minutes while Treasury yields rose. Precious metals fell across the board, with silver and platinum dropping 1.4% while palladium fell 1.1%

At the Comex close: December gold fell $15.50 to $1,258; December silver lost 28 cents, to $20.06; January platinum gave up $20.30 to $1,399.60; and December palladium surrendered $8.05 to $713.85 an ounce.