Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Extending yesterday's 1.5% surge, gold rallied another 1.3% to close at a three-week high near $1,220 as soft U.S. and Eurozone data stoked further risk-aversion.

Growth in the U.S. services sector slowed in December and new factory orders fell in November for the fourth consecutive month, signaling that the economy may be losing momentum. The ISM said services fell back in all categories to the lowest levels since June. The Commerce Department reported that orders for core manufactured goods contracted by 0.2% in November, revising its previous estimate of 0.2% growth. Economists at Barclays and Macroeconomic Advisors lowered forecasts for fourth-quarter GDP after the reports.

Eurozone services and manufacturing sectors also fell in November, according to Markit's new PMI report, raising the possibility of relapse into recession and increasing the odds that the ECB will undertake Fed-style quantitative easing to stimulate growth and forestall deflation. Tantamount to printing money, QE is likely to boost demand for gold in the region as investors seek protection from currency devaluation.

Hedge funds and other large money managers increased their bullish bets on gold, raising long positions by nearly 6% in volume because of worries about Eurozone growth, a possible Greek exit from the euro, and increased monetary easing in Japan and China. The Chinese government announced plans to fast-track $1.1 trillion in infrastructure stimulus to prevent growth from falling under 7%.

Today's subpar data pushed U.S. and global equities to extend their losses, with the Dow and S&P 500 dropping around 0.8% while the Global Dow fell 1%. U.S. Treasury bonds rallied alongside gold on flights to safety, while oil plummeted 4% to $48 per barrel. The other precious metals were solidly higher. Silver jumped 2.6% while platinum and palladium added 1%.

At the Comex close: February gold rallied $15.40 to $1,219.40; March silver jumped 42 cents to $16.64; April platinum added $12.20 to $1,223.10; and March palladium gained $8.25 to $801.45 an ounce.