Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold rallied 1.1% as anxiety grew over the solvency of Spanish banks, driving investors out of U.S. and global equities and into safer havens. For the past two weeks, eurozone turmoil has driven sentiment strongly against risk, pushing the dollar much higher and gold, in part because it is denominated in dollars, much lower. The dollar now appears to be over-bought, falling today despite investor flights to safety, whereas gold is beginning to rebound, gaining 3.6% in the last two sessions. Adding to pressure on the dollar and support for gold are growing expectations that the Fed will respond to souring U.S. economic data and spreading eurozone risk with another round of monetary easing, which would drive gold higher by devaluing the dollar and increasing inflation risk. Gold finished the week with a 0.5% gain, its first in three weeks. Silver gained 2.5% today but lost 0.6% for the week. After adding 0.4% today, platinum lost 0.8% this week, while palladium lost 0.4% today and finished the week flat.

June gold gained $17 to $1,591.90; July silver rose 70 cents to $28.72; July platinum picked up $5.90 to $1,459.30; and June palladium lost $2.25 to $603.60 an ounce.

Last week, in order to prevent the failure of Bankia, the conglomerate created 17 months ago to save other failing Spanish banks, Spain was forced to nationalize it. Bankia is Spain's third largest bank by assets. Yesterday, Moody's downgraded 16 Spanish banks, driving the cost of insuring Spanish debt to all-time highs. Today, the Bank of Spain acknowledged more the 130 billion euros in bad loans on the books. Things are not looking good for Spain's banking system and creditors are getting spooked. Foreign depositors withdrew 31 billion euros this month alone, stoking fears of a possible bank run only a few days after similar fears arose in Greece.

With shrinking GDP, expanding gross debt, unemployment above 24%, youth unemployment above 50%, rising yields, and an increasingly fragile banking system, Spain is perhaps most vulnerable to contagion from Greek default or departure from the euro. And with Spain's economy more than seven times the size of Greece's, that's becoming a scary thought to investors.