Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold closed down 0.1% but then gained in electronic trading after Fed Chair Ben Bernanke held out hope for additional monetary easing if economic conditions deteriorate. In a volatile session, gold initially fell $10 after the Fed raised its inflation and growth outlooks, which traders took to mean more easing was unlikely. But prices quickly recovered after the central bank confirmed that interest rates will stay near zero until late 2014. And then Bernanke declared in his post-meeting conference: �We remain entirely prepared to take additional balance sheet actions if necessary. Those tools remain very much on the table.� This pro-easing statement immediately weakened the dollar and buoyed gold. The other precious metals posted losses, with silver down 1.4%, platinum 0.1%, and palladium 1.6%.

At the close: June gold lost $1.50 to $1,642.30; May silver dropped 39 cents to end $30.36; July platinum slipped 80 to $1,547.30; and June palladium fell $10.70 to $655.10 an ounce.

For several years now, the main driver behind gold's bull market has been negative real interest rates. As long as nominal rates are below the rate of inflation, gold is attractive as a safe haven store of wealth because bonds and other interest-bearing investments lose money in real terms. Gold, on the other hand, does best in this environment. The Fed's confirmation of continued near-zero rates, by itself, is supportive of higher gold prices. But as the Fed Chair made clear today, another round of quantitative easing remains "very much on the table" if needs be. And if more economic reports come in like today's March durable goods orders, which tumbled an astonishing 4.7% for their worst monthly performance in three years, the need may be sooner than he expects. QE3 would very bullish for gold because it devalues the dollar and increases long-term inflation risk.