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Inflation Accelerates and Drives Gold to New High

Release Date: 
Friday, April 15, 2011

Gold prices hit a record high as global concerns over accelerating inflation in China and Europe and a weakening U.S. dollar increased demand. The metal traded at $1475.20 per ounce at 6:44 a.m. Pacific Time on the New York Spot Market. The U.S. Dollar Index, the six-currency gauge for the currency, hit its lowest levels since December 2009 yesterday and was little changed today as it continued to support gold prices.

"Inflation is the key word to investors," said Park Jong Beom, a Seoul-based trader at Tongyang Futures Co. "Gold will test $1,500 next week." Analyst sentiment is bullish, with 14 of 18 traders, investors and analysts surveyed by Bloomberg, or 78 percent, saying bullion will rise next week.

In China, consumer prices rose 5.4 percent in March, the quickest pace since 2008 and faster than the Chinese government's 2011 target for a third month. China's central bank has raised rates four times since October to fight inflation. Billionaire investor George Soros, chairman of Soros Fund Management LLC, has said that inflation in China was "somewhat out of control."

Euro zone inflation also accelerated more than was estimated last month, reaching 2.7 percent from 2.4 percent in February, the European Union's statistics office said today. That's above an initial March estimate of 2.6 percent and the highest inflation since October 2008 for the 17-nation region.

Inflation concerns "have brought in another bit of interest" to gold, said Afshin Nabavi, a senior vice president at MKS Finance SA, a bullion refiner in Geneva. "Obviously all the geopolitical problems" and a weakening dollar have supported prices, he noted.

Analysts at Barclays Capital also noted that inflation fears are acting as a catalyst for pushing gold and silver prices higher, citing Beige Book data issued earlier this week which "highlighted inflationary worries amid the current economic recovery. Despite the improving U.S. economy, the Federal Reserve acknowledged increasing raw-material and energy costs have created upward pressures on the overall price level," the analysts said in a research note.

(Sources: "Gold Advances to Record on Global Inflation Concern and Weakening Dollar," Bloomberg, April 15, 2011; "Gold, silver rally to fresh records," MarketWatch, April 15, 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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