Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold slipped 0.6% as traders took profits after positive U.S. economic data raised questions about the duration of QE3. Consumer sentiment unexpectedly jumped to its highest point since before the recession as falling unemployment combined with rising equities and home values to encourage optimism about the recovery. Because the Fed has vaguely tied QE3 to economic improvement, the news prompted speculators to cash-out some gains from gold's 11% rise last quarter. Reports that Chinese gold imports from Hong Kong dropped 29% in August, mainly because of higher prices and slower growth in China, also weighed on the market. Gold's weekly drop of 1.2% was the most since early July. The other precious metals fell harder today and also for the week. Silver lost 1.2% for a weekly loss of 2.3%; platinum dropped 1.8% on the day and 2.8% on the week; and palladium fell 1.8% on the day and 3.6% for the week.

At the Comex close: December gold dropped $10.90 to $1,759.70; December silver lost 41 cents to $33.67; January platinum fell $30.41 to $1,659.30; and December palladium fell $11.71 to $639.05 an ounce.

While today's consumer sentiment report might have caused some worries about the potential lifespan of QE3, the core PPI report should do just the opposite. Wholesale prices excluding fuel and energy were flat for the first time in a year. The Fed has specified that QE3 will remain in place as long as inflation is under control and unemployment is high. Although we'll get a better idea next week when the new consumer price index (CPI) data is released, today's PPI showed that the Fed has plenty of room to continue and even expand QE3 before inflation becomes an issue.

Credit Suisse certainly thinks so, telling clients today that the Fed is likely to launch QE3.5 as early as December. QE3.5 would expand QE3 by purchasing around $40 billion in Treasuries per month in addition to the monthly $40 billion in mortgage-backed securities under QE3. The banking giant raised its average gold-price forecast by 7% to $1,840 next year, citing structural problems with U.S. deficits and the dollar, the deepening eurozone debt crisis, and pent-up physical demand for gold in China and India as the primary drivers behind escalating prices.