Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold slid 0.7%, tracking equities and commodities lower as the dollar strengthened and eurozone bad-debt risk increased. Non-performing loans in Spanish banks surged above 8% for the first time since 1994, and above 6.3% in Italian banks for the first time since 2000, hurting the euro and helping the dollar. A rising dollar generally suppresses gold by making it more expensive in other currencies because it is denominated in dollars internationally. Spanish equity markets led the day's risk-off sentiment by plummeted 4%. Silver dropped by 0.6%, platinum by 0.4%, and palladium by 0.7%.

At the close: June gold lost $11.50 to $1,639.60; May silver slid 19 cents to $31.49; July platinum dropped $5.50 to $1,579.20; and June palladium fell $4.70 to $657.25 an ounce.

The bad loans in Spain and Italy, exacerbated by their depressed economies and rising unemployment, are raising new questions about the ability of eurozone banks to attract investment capital and function without yet more life-support from the ECB. France, too, is beginning to feel the spreading debt worries: costs for insuring its debt, or credit default swaps, rose to the highest level since January, when the eurozone appeared ready to implode. And yesterday, the IMF reported that European banks could be forced to liquidate as much as $3.8 trillion in assets through 2013 if governments fall short of their pledges to stem the debt crisis. Such a fire sale of debt could do serious damage to asset prices and credit supply in Europe, undermining the global recovery.

The World Gold Council's quarterly statistics commentary for Q1 of 2012 was released today. It found that gold prices rose 8.6% in first quarter on the London fix, with gains in all currencies and the yen leading the way. Gold's volatility did increase during the quarter, driven mainly by increased activity by speculators in futures derivatives. Purchases in gold-backed ETFs grew by 57 tonnes, underscoring an increased strategic allocation to gold by investors. And despite gold's recent positive correlation with risk asset and equities, its overall performance remains solidly independent of risk asset performance. In other words, its traditional role as safe haven store of value remains primary.