Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold rallied 0.7% as a weaker dollar spurred demand for the metal as a store of value. The dollar dropped against most rivals after new research suggested that the Fed may lower its 6.5% unemployment target before raising interest rates, effectively holding rates low for longer than previously thought. The U.S. currency was also pressured by expectations that the ECB will stand pat on its benchmark rates for the euro when it meets this week. A falling dollar supports demand for gold, which is denominated in dollars internationally and becomes less expensive to holders of other currencies.

In studies published today on the IMF website, top Federal Reserve researchers determined that holding interest rates down is an effective means of reducing unemployment, and the U.S. economy has sufficient slack to justify the continuation of accommodative monetary policies. William English, head of the Fed's Division of Monetary Affairs, concluded in one study that greater strides against joblessness are likely if the Fed lowers its threshold for raising rates from 6.5% to 5.5% unemployment. A separate paper by David Wilcox, the Fed's research and statistics chief, found that low inflation and excess capacity in the U.S. economy warrant the continuation of monetary stimulus.

Coming after a series of dovish comments by Fed officials over the past week, the new research increased speculation that quantitative easing, the Fed's program of buying $85 billion in long-term bonds each month, will continue unabated for the next few months, at least. QE supports higher gold prices by undermining the dollar and increasing the risk of long-term inflation. The news helped the Dow gain 130 points to new record-close and boosted commodities across the board. Silver added 0.6% while platinum and palladium jumped 1.2% and 1.9%, respectively. The PMGs were helped by supply concerns over a possible mining strike in South Africa.

At the Comex close: December gold rallied $9.70 to $1,317.80; December silver added 13 cents, to $21.77; January platinum climbed $17.40 to $1,467.40; and December palladium jumped $14.05 to $764.35 an ounce.