Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold surged 1.5% to close near $1,108, a fresh two-month high, on safe-haven demand as the global rout in equities extended to a sixth session, propelled by deepening concerns about China's stuggling economy. The metal has gained 4.4% so far this year.

For the second time this week, China's stock markets plunged 7% and triggered a "circuit-breaker" mechanism that automatically shuts down trading on the Shanghai Exchange. Chinese officials said they will disable the safeguard mechanism because it adds to the very volatility it was designed to prevent.

The China sell-off hammered regional currencies and sent shockwaves through global markets, driving the Dow lower by 2.2% and the Global Dow by 1.8%. U.S. Treasury yields fell to a new four-week low as investors sought safety in government bonds and gold.

The dollar fell sharply against major rivals, especially the Japanese yen, which received strong safe-haven inflows after the People's Bank of China devalued the yuan by another half-percent to stabilize its markets. The buck was also pressured by yesterday's release of dovish minutes from the latest FOMC meeting, which signaled deep concern about low U.S. inflation and raised questions about the pace of future rate hikes.

To offset currency risk, China added to its gold reserves, buying another 19 tonnes in December for a total of 104 tonnes in the past sixth. The PBOC is forecast nearly to triple its gold reserves in coming years, to as much as 5% of its foreign exchange reserves, up from 1.8% today. This rising official demand is expected to support global gold prices.

The other precious metals were mixed. Silver tracked gold higher on safe-haven demand, gaining 2.6%. Platinum tacked on 0.3% while palladium, more directly tied to the auto industry, followed yesterday's 5.7% tumble with a loss of 2.4%.

At the Comex close: February gold surged another $15.90 to $1,107.80; March silver jumped 37 cents to $14.34; April platinum picked up $2.50 to $877.50; and March palladium lost $12.50 to $493 an ounce.