By Alix Steel
03/16/11 - 10:31 AM EDT
Gold for April delivery was adding $6.90 to $1,399.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has moved through the $1,400 level, a psychologically important level for investors, and traded as high as $1,405.70. The spot gold price was adding $9, according to Kitco's gold index.
Silver prices were also participating in the relief rally, up 56 cents to $34.68 an ounce. Silver also saw nearly a 5% selloff Tuesday but still held above the $33.50 level. Silver is appealing to investors not only for its safe haven status but also for its use as an industrial metal, which will be pivotal to rebuilding Japan.
All told, gold prices tanked 2.25% Tuesday as Japanese investors frantically sold gold for cash. The selloff brought bargain hunters into the market who started picking up the metal around $1,380 an ounce and have pushed the metal past the $1,400 level.
"I still think there is still room to get in on gold," says Scott Redler, chief strategic officer for T3Live.com. "I think at some point it's going to make new highs this year and it's something you should have." Redler trades the SPDR Gold Shares(GLD), which has shed 5 tons in the last week.
Safe haven buying is coming back into the market after Bahrain declare martial law in the country and three more people died as protesters clashed with police. Iran condemned the military support of other Arab nations including Saudi Arabia, which has now sent 1,000 troops into the region.
Oil prices have rallied as a result, bringing precious metal prices with them as the two have traded in tandem during this recent crisis in the Middle East-North Africa region.
The bank of Japan also pumped more money into its economy, bringing the three day total to 55.6 trillion yen, or $688 billion. More paper money in any economy highlights gold as a safer alternative paper currency.
Bad news is still coming out of the Eurozone with Moody's downgrading Portugal's long term credit rating with a negative outlook citing low growth, questioning its ability to implement its debt reduction program and its capacity to borrow money without huge interest payments.
Will Rhind, head of U.S. operations for ETF Securities, says he thinks the panic selling in gold is done for now and that safe haven buying will continue to dominate the market. "We've seen no outflows out of our gold products here in the U.S. We are seeing some inflows into silver."
Most analysts are calling for more volatility in gold and silver despite the Nikkei's 5.7% rally and as the Dow Jones Industrial Average contends with more triple digit losses on the news that European Union Energy Chief Gunther Oettinger said Japan's nuclear plant crisis is "out of control." Broad equity selloffs will increase investors' need for cash.
Gold will also take its direction from February's consumer price index set to be released Thursday. The precursor, the producer price index, doubled to 1.6% in February with food prices rising 3.9% and energy prices up 3.3% year over year. The U.S. only counts core prices, excluding food and energy, in the main inflation reading, which is up 1.8% over the last 12 months.
The CPI number tends to be a mixed bag for gold. A high inflation reading Thursday could prompt safe haven buying into gold as the U.S. dollar becomes worth less over the long term, but might also force the Fed's hand in raising rates or altering its bond buying program. A flat or subdued reading would keep a flow of cheap money in the system but traders using gold as an inflation hedge could dump the metal.
Shares of Eldorado Gold(EGO) were shedding 1.84% to $14.90 despite the fact the miner said mineral resources and gold reserves increased by 14% and 24%, respectively, by the end of the fourth-quarter 2010.