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Gold Reaches New High as World Battles Inflation

Release Date: 
Wednesday, April 6, 2011

Gold prices reached a new high on Wednesday due to the dollar’s continued fall against the euro, inflation concerns and safe-haven demand. UBS Strategist Edel Tully commented on gold breaking new price thresholds as policy makers fight inflation in Europe and China. The metal may extend gains toward $1,465.71 an ounce after breaking through the "psychological" level of $1,450, she wrote in a report. The price of gold was $1459.90 per ounce at 6:32 a.m. Pacific Time on the New York Spot Market.

Central banks are tackling inflation across the world by tightening monetary policy, however
most benchmark interest rates are negative when adjusted for inflation. Euro zone policy makers are expected to raise European Central Bank rates on Thursday for the first time since July 2008, despite the debt crisis affecting several euro zone countries. "While a move to monetary policy tightening is not necessarily gold-positive, the inflation risks spurring the euro zone tightening are supportive of gold," Tully said. The euro has rallied to a more-than 14-month high versus the dollar with accommodative monetary policy from the U.S. Federal Reserve.

China raised interest rates yesterday for the fourth time since mid-October ahead of a report showing that consumer prices in China climbed 5.2 percent last month from a year before, the fastest pace since 2008 according to a Bloomberg survey. "The reality of accelerating inflation in China is indeed positive for gold," Tully noted in the UBS report.

"The current climate is still favorable for precious metals," said Commerzbank analysts in a note.

"Continued unrest in North Africa and in the Arab world and the debt crisis in euro-zone peripherals, coupled with the weak U.S. dollar and still loose monetary policy of western central banks, are fuelling price speculation," they wrote.

Silver also reached a new 31-year price high on Wednesday for the second consecutive day.

 

(Sources: "Gold Climbs to Record for Second Day on Inflation; Silver at 31-Year Peak,"

Bloomberg, April 6, 2011; "PRECIOUS-Gold hits fresh record-highs, silver at 31-yr peak,"

Reuters, April 6, 2011; "Gold hits new record; silver at 31-year high," MarketWatch, April 6, 2011)

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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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