Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold rallied 0.8% as risk-appetite rose after some softer U.S. economic data put the possibility of monetary easing back on the table. The Philadelphia Fed manufacturing index was negative for a fourth straight month in August, following yesterday's similarly negative reading for the New York Fed region. Considered to be leading indicators of general U.S. economic health, these regional readings undercut some of the confidence generated by this week's positive factory and home-builder data. In addition, housing starts retreated in July and jobless claims edged up. The dollar fell on the news while stocks and commodities rallied. Many analysts thought the positive data earlier this week decreased the odds of Fed action in September. With today's negative data, they can�t be so sure. Easing stimulates demand for risk assets and commodities because it increases liquidity and devalues currencies, spurring investors to look for higher returns and inflation hedges. The other precious metals followed gold higher, with silver gaining 1.2%, platinum 2.7%, and palladium 0.8%.

At the close: December gold rallied $12.10 to $1,618.70; September silver added 34 to $28.15; October platinum rose $37.79 to $1,433.90; and September palladium gained $4.75 to $582.80 an ounce.

The World Gold Council (WGC) today published its quarterly Gold Demand Trends. While overall demand during the second quarter decreased by 7% from the year before, when demand was truly exceptional, the overall dollar-value nonetheless remained flat because gold prices averaged 7% higher than last year, at $1,609.45. A primary cause of reduced demand was the jewelry sector, which constitutes 42% of global purchases and fell by more than 15%. India was the main reason. The world's largest gold consumer saw record-high gold prices as the result of a terribly weakened rupee, resulting in a 30% decline in gold jewelry demand in that nation alone. Once the rupee strengthens again, pent-up demand should flood back into the Indian market and support higher gold.

Central bank demand in the first and second quarters reached a new record, according to the WGC. Central bankers bought more than 254 tons of gold in the first half of 2012�25% more than in 2011, which was itself a record�in order to diversify sovereign reserve holdings away from dollar and euro risk. Russia, Turkey, Kazakhstan, Ukraine, South Korea, and the Philippines all made sizable purchases, generally between 15 and 32 tons. While China's official gold purchases remain outside of WGC statistics, Zero Hedge reports that Beijing bought 68 tons from Hong Kong in June alone, bringing China's total imports to 383 tons in just the first six months of this year! This escalating demand from central banks, which the WGC sees continuing unabated, should be a major driver of higher gold prices for years to come.