Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold rallied 0.6% as the markets grew more optimistic about a fiscal-cliff deal and additional monetary easing in December. Seeing yesterday's technical sell-off as a isolated event, long-term gold investors stepped in to take advantage of lower prices, driving holdings in bullion-backed ETFs to new all-time highs for the second straight day. Positive comments from both political parties on the fiscal-cliff negotiations combined with 2.7% growth in the third-quarter GDP and falling jobless claims to spur a return of risk appetite, which boosted commodity demand for precious metals. Silver leapt 2% while platinum picked up 0.5% and palladium jumped 1.8%.

At the Comex close: December gold gained $10.70 to $1,727.20; March silver jumped 66 cents to $34.43; January platinum picked up $7.80 to $1,619.50; and March palladium jumped $12.25 to $687.45 an ounce.

Gold also received support from expectations of more monetary easing from the Fed. The Wall Street Journal reported today that the Fed will begin monthly purchases of up to $45 billion in Treasuries when Operation Twist ends next month. San Francisco Fed President John Williams said "it would be a surprise to the markets" if it doesn't happen. New York Fed President William Dudley, an influential FOMC voter, signaled support for the move, saying today that added Treasury purchases should hinge on job growth, which "has been insufficient to materially change the labor market picture." And Chicago Fed President Charles Evans called for more stimulus yesterday, adding that interest rates should stay near zero until the jobless rate falls to at least 6.5%.

Unlike Operation Twist, in which long-term bonds were exchanged for short-term bonds to maintain a static balance sheet, the new purchases of long-term Treasuries will increase the Fed's balance sheet, like QE3, and be tantamount to printing money. Sometimes called QE3.5, they would be in addition to the monthly $40 billion in mortgage-backed securities already being bought under QE3. This additional easing should be quite bullish for gold because it further devalues the dollar and increases the risk of long-term inflation. Three rounds have QE helped the gold price to more than double since 2008.