Gold surges 2.5% on safety, QE3 outlook
Source: Dr. Bill Musgrave, American Gold Exchange
-- Gold surged 2.5% as poor U.S. economic reports combined with continuing worries over the eurozone to renew safe-haven inflows and raise the prospect of QE3. Consumer confidence sank to a four-month low while new jobless claims were higher than expected, unchanged from the week before at 370,000. The Conference Board's index of leading economic indicators fell for the first time in seven months. And perhaps most alarming, the Philly Fed region's manufacturing index turned negative for the first time since September, in a sharp and surprising decline. The dollar rose for a 14-session streak, breaking its recent negative correlation with gold as both benefited from flights to safety. U.S. Treasury prices also gained again while benchmark 10-year yields fell to their lowest level on record. The other precious metals rose, with silver gaining 3%, platinum 1.4%, and palladium 2%.
At the close: June gold surged $38.30 to $1,574.90; July silver added 82 cents to $28.02; July platinum gained $21.20 to $1,453.40; and June palladium rose $11.75 to $605.85 an ounce.
This new round of dismal U.S. data is expected to increase pressure on the Fed to embark on another round of monetary easing (QE3). The minutes from the last FOMC meeting, released yesterday, show more members would be inclined toward additional easing "if the recovery lost momentum" and if "strains in global financial markets…continued to pose a significant risk." While it's always tricky to parse Fed-speak, these two essential criteria seem to be met by the new data and deepening crisis in Europe.
More than $3 trillion has been lost from global equities this month over concerns about Greece leaving the euro. The S&P 500 has tumbled 7.3% since April. And much of the extreme weakness in Philly Fed manufacturing is being attributed to decreasing demand for U.S. exports in Europe, which will only decrease further as a falling euro makes U.S. goods less price-competitive. Manufacturing strength has been one of the critical drivers of the U.S. recovery. QE3 would drive down the dollar, lower the prices of U.S. exports, and stimulate both manufacturing and the stock markets. It would also drive the price of gold much higher.