Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold rallied nearly 1% to close above $1,660 on bargain-hunting and safe-haven inflows as talks collapsed on the fiscal cliff. Speaker Boehner failed to corral Congressional support for his own so-called "Plan B," which would allow taxes to rise only on earners above $1 million. With negotiations stalled and time running out, odds are increasing that $600 billion in spending cuts and tax increases will impact the economy starting January 1. U.S. and global equities dropped nearly 1%, and consumer sentiment tumbled to its lowest level since July on fiscal-cliff worries. The other precious metals were mixed. Silver gained 1.8% to close over $30, and palladium added 0.3%, while platinum slid 0.6%.

At the Comex close: February gold rallied $14.20 to $1,660.10; March silver gained 52 cents to $30.20; January platinum slid $9.30 $1,536.90; and March palladium added $2.05, to $682.30 an ounce.

Central banks continue to be strong net-buyers of gold bullion. Brazil purchased another 14.7 metric tons in November, after adding almost 19 tons in September and October, according to recent IMF data. Russia bought another 2.9 tons and Belarus another 1.4 tons. Especially in emerging economies, central banks are adding to their gold reserves in order to diversify away from dollar-risk and hedge against inflation.

China looks like it will eclipse India as the dominant gold buyer in 2013 and beyond, if it hasn�t already. The People's Bank of China is expected to increase its gold reserves substantially, the London Bullion Market Association said last month. While it doesn�t disclose its holdings, China currently keeps a mere 2% of its currency reserves in gold, according to recent estimates, compared to 70% to 75% for the U.S., France, and Germany. With the world's largest currency reserves, estimated at around $3.3 trillion, China has the capacity to drive the gold market in a big way if it decides to match the holdings of major developed economies.