Gold Futures Advance to Record as Inflation Pressures ‘Scream’

Gold hits another record for the third straight day on expectations that inflation will continue to accelerate and the rising interest rates in Europe.

By Pham-Duy Nguyen
Apr 7, 2011 11:56 AM MT
BLOOMBERG

Gold climbed to a record for the third straight day on speculation that inflation will accelerate as the U.S. trails Europe in raising interest rates.

Bullion advanced to an all-time high of $1,466.50 an ounce. European Central Bank President Jean-Claude Trichet lifted borrowing costs for the first time in almost three years. Federal Reserve Chairman Ben S. Bernanke said on April 4 that any boost to consumer prices would be “transitory.” The Thomson Reuters/Jefferies CRB Index of 19 raw materials rose to the highest since September 2008.

“Gold, oil, the CRB Index, foreign currencies and Treasury yields are all screaming at Bernanke that it’s time to join Mr. Trichet in the fight against inflation,” said Michael Pento, a senior economist at Euro Pacific Capital in New York. “But the sad truth is that the double-dipping real estate market and the onerous U.S. debt levels prohibit interest-rate hikes without dire consequences in the short term.”

Gold futures for June delivery rose 80 cents to settle at $1,459.30 an ounce at 1:53 p.m. on the Comex in New York. The metal for immediate delivery in London gained as much as 0.4 percent to a record $1,464.93.

Trichet signaled more rate increases after the ECB today raised the benchmark rate to 1.25 percent from a record low of 1 percent. The Fed has kept the benchmark U.S. rate at zero percent to 0.25 percent since December 2008 to stimulate growth.

Dollar ‘Differential’

“Going forward, there will be a differential between the euro and the dollar because the U.S. can’t or isn’t inclined to raise rates,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Gold is supported by the view that the dollar will weaken.”

Prices will average $1,460 this year, up from a previous forecast of $1,426, Standard Chartered Plc said today in a report. The metal will average $1,650 next year, the bank said.

Gains were limited as some investors locked in profits, said Adam Klopfenstein, a senior market strategist at Lind- Waldock in Chicago.

“Everyone had priced in the ECB rate hike, and the dollar regained a bit of strength, which dampened the sell-dollar-buy- gold trade,” Klopfenstein said.

Silver futures for May delivery rose 16.5 cents, or 0.4 percent, to $39.552 an ounce on the Comex. Yesterday, the price reached $39.785, the highest since January 1980. That year, the most-active contract reached a record $50.35.

Palladium futures for June delivery fell $4.35, or 0.6 percent, to $780.25 an ounce on the New York Mercantile Exchange. Platinum futures for July delivery fell $7.20, or 0.4 percent, to $1,790.60 an ounce on the Nymex.

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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