Gold News

Gold breaks back above $680 on "zero" US inflation data

Spot gold prices broke above $680 per ounce for the fourth time this week at the US open on Friday.

The move came on mixed US inflation data and a lower than expected trade deficit for Feb.

On the currency markets, the Euro rose above $1.3500 today for the first time since Jan. 2005. Sterling recorded a 3-month spike just shy of $1.9900.

But those moves still let physical bullion prices for British investors rise back above £343 by late lunchtime in London.

French, German and Italian gold traders saw the metal recover from last night's dip below €500 per ounce – the first in a week – back above €503.50 per ounce.

(Why should non-Dollar gold prices matter to US investors? Click here to find out...)

Today's US data showed Producer Prices – the prices paid to factories and farms – gaining 1.0% in March.

That came on top of a 1.3% rise in Jan. It was well ahead of Wall Street's consensus expectation of a 0.7% increase.

But the "core" PPI was static last month, according to the Labor Dept., recording a 0.0% change.

And the core PPI excludes fuel and food, those mere fripperies of modern life. The cost of living in the United States isn't rising, in other words, just so long as you don't drive or eat.

"Further policy firming might prove necessary to foster lower inflation," said the US Fed's top officials at their March meeting.

But despite hiking interest rates 17 times from the "emergency" low of 2002-04, the Fed has now watched its own preferred measure of inflation – so-called "core" consumer prices – bounce around the top of its comfort zone for the last 3 years.

"The Labor Department is forecast to report on [Tues] April 17 that its consumer price index rose 0.6% in March after a 0.4% gain in February," says Bloomberg, "while core inflation held at 0.2%."

Many serious economists now view Washington's official inflation data as grossly inaccurate, however. Bill Gross, head of the world's largest bond funds at Pimco, has called them a "con job". (Click here for more...)

Back in today's spot gold market, and "there is a risk that if we continue to fail through roughly $680," says Stephen Briggs, an economist at SocGen, "then we may see disillusion and some liquidation.

"[Gold's] running out of steam for the time being and there needs to be something else to support it," he adds. "The Dollar is clearly not enough for the moment."

This weekend's G7 meeting of world-leading finance ministers in Washington may provide a little rocket fuel.

Battling over the ongoing "weak Yen" policy pursued by Tokyo, European politicians are expected to demand higher Japanese interest rates.

"We think that Japanese growth is without doubt picking up," said Jean-Claude Juncker recently. We think that the exchange rate must reflect the fundamental facts of the Japanese economy.

"Our Japanese friends know that. And we are watching them."

Get the full story on the EU-Japan battle – and what it means for gold – here...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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