Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold rallied 1% and silver 1.5% as risk-trade was stoked by positive U.S. data and an agreement by eurozone ministers to increase their firewall against debt contagion to 700 billion euros. The euro strengthened on the news while the dollar index slipped to a one-month low, making dollar-denominated commodities like gold cheaper. U.S. and global equities rallied, with the S&P 500 notching a quarterly gain of 12%, its best first-quarter advance since 1998. Gold finished the quarter up 6.7% while silver, more closely tied to equities and industrial activity, leapt by 16%. Platinum added 1% for the day and 17% for the quarter, while palladium gained 1.5% for the day but lost 0.3% for the quarter.

At the close: June gold rallied $17 to $1,671.90; May silver gained 50 cents to $32.48; July platinum rose $15.80 to $1,644.10; and June palladium added $9.55 to $654.10 an ounce.

Commerce Department figures showed consumer spending rose by 0.8% in February, exceeding expectations, while University of Michigan index of consumer sentiment rose to its highest level in a year. Gains in employment are credited for the optimism, although Fed Chair Bernanke said earlier this week that the labor market remains fragile and recent gains could be unsustainable. "Further significant improvements," he said, would be supported by continuing "the Federal Reserve's accommodative monetary policies." Many market analysts believe him to be laying the groundwork for a QE3 announcement as early as the April FOMC meeting. Gold surged after Bernanke's comments this week.

One burr in today's data was the ISM-Chicago business barometer, which fell more than expected in March. Earlier this month, the Fed manufacturing surveys from the Richmond, Dallas, New York, and Philadelphia regions, while generally positive, all showed upward price-pressure and slowing in important areas. NYU economist Nouriel Roubini said on CNBC today that the current growth rally is unlikely to last because the "painful process of deleveraging is going to continue" in the U.S., and draconian austerity in Europe is likely to cause "strikes, demonstrations, weak governments, and eventually failing governments." Roubini is widely credited with accurately predicting the subprime crisis and its aftermath, so his words carry weight. If he's right again, we'll almost certainly see QE3, probably by June, which would further devalue the dollar and increase inflation risk, driving much higher gold prices.