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Gold Price Spikes as Inflation Worries Escalate

Release Date: 
Tuesday, February 15, 2011

GOLD PRICE NEWS - The gold price spiked higher Tuesday morning, climbing $13.75 to $1,375.50 per ounce. Inflation expectations have been on the rise in recent days, helping to propel the price of gold through its 50-day moving average for the first time since January 13. Following two straight weeks of gains, the gold price extended its monthly rise to over 3%.

Weaker than expected retail sales – announced this morning – helped boost the gold price as did a jump in the January Import Price Index. Import prices rose 1.5% last month versus expectations of 0.8%. Economic data has been strong in recent months, however, if the employment situation stays dire and January's weak retail sales are a precursor to a slowing consumer, then gold prices may be set to challenge their record highs.

Silver prices followed the price of gold higher this morning, rising to within 1% of the $31.23 per ounce 30-year high posted on January 3. With today's rally, gold's sister precious metal pushed its month-to-date return to in excess of 10%.

Another factor helping to drive the gold price higher in recent days was U.S. President Barack Obama's submission of a $3.7 trillion budget to Congress. The budget forecasts the federal deficit will surpass $1 trillion in 2012 for the fourth straight year. Obama's proposed budget would lower the deficit by $1.1 trillion over the next decade by various spending cuts. It also would lift revenues by raising taxes on married couples with over $250,000 in annual income and ending certain tax breaks for various energy companies.

Republicans were quick to criticize the proposal. Congressman Paul Ryan of Wisconsin, Chairman of the House Budget Committee, stated that Obama "has failed to tackle the urgent fiscal and economic threats before us...The president's budget accelerates our country down the path to bankruptcy," he said.

Various Democrats also expressed their displeasure with the plan. Kent Conrad of North Dakota, Chairman of the Senate Budget Committee, contended that it requires "a much more robust package of deficit and debt reduction...It is not enough to focus primarily on cutting the non- security discretionary part of the budget. We need a comprehensive long-term debt-reduction plan, in the size and scope of what was proposed by the president's fiscal commission."

While legislators across the political spectrum have stressed the need to reduce the deficit, their policies have continued to move in the opposite direction - a fact that has provided a headwind for the gold price over the past decade. The U.S. federal deficit is expected to reach a record $1.6 trillion this fiscal year and policymakers have been unable to demonstrate thus far that the government is capable of agreeing on any meaningful deficit reduction measures.

The gold price's ascent over the past ten years is a strong indication of the declining economic health of America and, more specifically, waning global confidence in the U.S. dollar.

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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 guar­antee 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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