Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold gained 0.5% to recapture some of yesterday's declines as higher oil prices and dovish comments from the Fed Chair spurred demand for the metal as an inflation hedge. Crude oil jumped 1.5% to settle above $108 per gallon, its highest close in over a year, behind data indicating a dramatic drop in inventories. Surprisingly strong manufacturing in the Philadelphia Fed region added to expectations that oil supplies may tighten further, driving up prices. Rising energy costs have already translated into higher consumer prices, causing June's CPI to jump by 0.5% despite near-flat inflation in most other areas.

Gold was further supported after Ben Bernanke, in his second day of Congressional testimony, said the FOMC may delay reductions in its bond-buying program, known as quantitative easing, if the economy misses forecasts. After June's FOMC meeting, Bernanke roiled markets by saying the Fed may begin tapering QE in September. Today, he reduced the odds of a September taper by emphasizing again that data, not a preset timetable, will determine the timing.

With most economists forecasting second-quarter growth of 1% or lower, following 1.7% in the first quarter, GDP is likely to fall well-short of the Fed's target of 2.3% to 2.6% for year. Bernanke underscored that the job market, too, is "far from satisfactory," with 7.6% unemployment "well above" normal for this stage of the recovery.

Tantamount to printing money, QE has helped to increase the gold price by undermining the dollar and raising the risk of long-term inflation. It has also driven rallies in U.S. stock markets by flooding the economy with liquidity and encouraging risk-taking by investors. Following the Fed Chair's testimony, the S&P and Dow both rose to new record highs. Silver slipped 0.2% while platinum and palladium added 0.3% and 1.6%, respectively.

At the Comex close: August gold gained $6.70 to $1,284.20; September silver dipped 3 cents to $19.39; October platinum added $3.80, to $1,414.80; and September palladium picked up $12.05 to $747.50 an ounce.