Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold slipped 0.6% as investors shifted into dollars after dubious news from the eurozone cast a longer shadow over prospects for global growth. Prime Minister Mario Monti admitted that Italy might need a bailout to ease its borrowing costs, signaling the further creep of contagion into core eurozone economies. And Germany's judiciary may take three months to rule on the constitutionality of funding the European Stability Mechanism (ESM), the monetary union's main line of defense against default and possible dissolution. The greenback promptly rose to a two-year high against the euro and U.S. Treasury prices gained on safe-haven inflows. The Dow lost more than 80 points and oil fell nearly 2.5%. The other metals declined further than gold, with silver down 2.1%, platinum 1.1%, and palladium 1.3%

At the close: August gold slipped $9.30 to $1,579.80; September silver fell 56 cents to $26.88; October platinum lost $16.20 to $1,429.70; and September palladium fell $7.30 to $576.60 an ounce.

Monetary stimulus continues to be the wild card in every central banker's hand. Faced with deepening deflation, the Bank of Japan today announced another round of quantitative easing totaling around 16 trillion yen in new asset purchases. China cut rates last week for the second time in a month. The Bank of England voted to expand its QE program by $76 billion and Brazil unveiled a $4 billion stimulus program less than two weeks ago. And the list goes on.

More Fed officials have now weighed in on the state of the world economy and QE3 after last Friday's disappointing payrolls report. Yesterday, San Francisco Fed's John Williams called for "extraordinary vigilance" and mentioned the possibility of "additional purchases of longer-maturity securities, including agency mortgage-backed securities." Speaking in Bangkok, two other Fed members were even more emphatic. Chicago Fed's Charles Evans said explicitly that "the economic circumstances warrant extremely strong accommodation." And Boston Fed's Eric Rosengren said, "it's appropriate to have more quantitative easing." He's also concerned the deepening eurozone debt crisis could "create even more havoc" than the collapse of Lehman Brothers did four years ago, which is another reason to insulate the U.S. economy against shocks.

Richmond Fed's Jeffrey Lacker, on the other hand, told Bloomberg Radio that he is opposed to more stimulus. Lacker is a well-known inflation hawk. And St. Louis Fed's James Bullard, speaking in London, also played down the prospects for QE3, saying: "If things slow down a lot more and the U.S. economy looked like either that it was going into recession or that deflation would develop, then I think we could consider more action."