Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold surged 3.1% to close at $1,232, its highest finish in six weeks, as changes to China's bond market and rising instability in Greece caused global investors to shun risk assets in favor of safe havens.

China tightened its lending policies to accept only AAA-rated bonds in repurchase agreements, the nation's clearinghouse for debt exchanges used by regional and provincial governments for financing infrastructure projects. The goal of the Chinese government is to curb the shadowy expansion of risky debt taking place on the local level. The change sparked an instantaneous liquidity crunch as lower-rated debt could no longer be used as collateral.

Asian equities quickly sold off, with the Shanghai Index plunging 5.4%, the most since 2009, while other regional indexes fell in sympathy. European equities quickly followed suit after Greek stocks tumbled 13%, the most in 27 years, on rising political instability. Prime Minister Samaras called for snap elections for a new head of state, jeopardizing the nation's ability to obtain financing to replace its onerous bailout program and causing bond yields to jump.

The yen spike higher on safe-haven inflows while the dollar fell from two-year highs, supporting precious metals and other commodities denominated in it for international trade. U.S. Treasuries also rallied alongside gold on flights to safety, while U.S. equities rolled back.

Gold was further supported, and the dollar pressured, by speculation that the Fed will refrain from raising interest rates until June 2015 or later. Prominent FOMC members John Williams of the San Francisco Fed and Dennis Lockhart of Atlanta said separately that forward guidance on rates should continue to keep them near-zero for "a considerable time."

The other precious metals were all higher, with silver leading the way by jumping 5.3%. Platinum and palladium added 1.4% and 1.7%, respectively.

At the Comex close: February gold for delivery surged $37.10 to $1,232; March silver jumped 86 cents to $17.13; January platinum gained $17.40 to $1,246.80; and March palladium added $13.80, to $811.60 an ounce.