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Gold Price Blasts Through $1,380

Release Date: 
Thursday, February 17, 2011

GOLD PRICE NEWS - The gold price rallied $7.40 to $1,381.85 per ounce, hitting 5-week highs amid heightened inflation worries. Gold prices have climbed in a steady fashion in February, gaining $48 over the course of this month. The January Consumer Price Index (CPI) rose 0.4% month over month, ahead of the 0.3% consensus estimate among economists. The core rate, which excludes food and energy (who needs to drive or eat?), climbed 0.2% - the largest gain since October of 2009.

Yesterday, the gold price jumped to an intra-day high of $1,382.70, but pared its gains after the Fed minutes were released. The summary of the Federal Reserve's latest monetary policy meeting included similar rhetoric to that which has been delivered in recent months. Since the onset of QE in November, Chairman Bernanke and the Fed have highlighted the progress of the economic recovery. However, they have also continued to point to challenges in the employment and housing markets as factors necessitating their crisis-level monetary policies.

The latest Fed minutes included a reiteration of this view - economic recovery "firming," a lack of "significant improvement in labor market conditions," and weakness in "construction activity in both the residential and nonresidential sectors." The Fed minutes also addressed commentary from a few FOMC members that "additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size" of QE2. In response, the minutes noted that other FOMC members "pointed out that it was unlikely that the outlook would change by enough to substantiate any adjustments to the program before its completion."

The overall message from the Fed minutes was that Bernanke and the majority of FOMC members intend to keep interest rates near the zero bound for the foreseeable future and carry out QE2 to its conclusion. Moreover, the commentary will add to speculation that the Fed is considering additional rounds of quantitative easing if the labor and housing markets remain challenging.

Early this morning, the Labor Department released initial jobless claims for the most recent week and the results illustrated the ongoing weakness in the labor market. Jobless claims increased by 410,000, ahead of the 400,000 median estimate of economists surveyed by Bloomberg.

The challenging labor market will likely ensure that real interest rates remain in negative territory for the foreseeable future, a fact that would continue to create a very favorable macro-economic backdrop for the gold price.

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This article is independently provided by and does not represent the views or opinions of Goldline International, Inc. Although the information in this article has been obtained from sources believed to be reliable, Goldline does not guarĀ­antee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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