Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold slipped 0.5% after the Federal Reserve announced that it will continue Operation Twist. While the language of the Fed statements clearly leaves the door for more easing in the near future, metals and equities markets were hoping for a more aggressive intervention, like another round of quantitative easing, given the slowdown in the U.S. recovery and the growing threats from the eurozone debt crisis. The dollar rose and the Dow fell. Silver edged up 0.1% while sister metals platinum and palladium dropped 0.9% and 1.6%, respectively.

At the close: August gold slid 0.5% to $1,615.80; July silver added 2 cents to $28.39; July platinum $13.70 to $1,466.80; and September palladium fell $9.90 to $619.50 an ounce.

Operation Twist, as we've described before, is the Fed's program of exchanging short-term for long-term securities in an effort to drive down borrowing costs. Quantitative easing is the outright purchasing of long-term government securities by the Fed, effectively flooding the economy with newly printed money. QE is widely seen as the more effective and aggressive course but comes with increased risk of long-term inflation, which is bullish for gold.

Importantly, the Fed acknowledged today that the recovery is faltering, and reaffirmed its willingness to use all of its available tools to stimulate the economy. After lowering its official forecasts for GDP and employment, the Fed said it "is prepared to take further action" to promote growth and reduce unemployment. The central bank also renewed its commitment "to maintain a highly accommodative stance for monetary policy," with near-zero interest rates until late 2014. And in his post-meeting news conference, Fed Chair Bernanke reiterated: "We still do have considerable scope to do more and we are prepared to do more." If the job market doesn�t turn around soon, QE3 could be just around the corner.

The Financial Times reported today that Indian gold demand could soar later this year and push gold to a new all-time high. The world's largest consumer of gold, India saw gold demand plummet by more than 50% this year because of a struggling economy. But traders see this drop-off as a purely cyclical phenomenon. With a recovery expected, pent-up demand could cause a replay of 2010, when consumption soared 74% to a record high of 1,006 tons after a similar drop-off in 2009. As the Financial Times put it: "A similar rebound, later this year or in 2013, could be just the stimulus gold needs to regain its previous peak above $1,900 a troy ounce."