Gold Prices jumped to a three-week high early Wednesday after European and US inflation data sent traders scurrying for hard assets and the Euro single currency shot to new record highs vs. the Dollar.
Rising at 3.6% year-on-year in March – the fastest rate since the single currency was launched in 1999 and a multi-year high for French, German and Italian consumers – Eurozone inflation has now spent 52 of the last 70 months above the European Central Bank's target of 2.0%.
Crude oil broke new all-time highs this morning above $114 per barrel.
Today's Consumer Price data from the Dept. of Labor then showed the US cost of living rising 4.3% from March 2007, completing the longest run of plus-four per cent inflation in 16 years.
"Inflation is going up everywhere [and] Gold will gain from that," said a London trader to Reuters earlier.
The spot Gold Market rose 2.1% from its overnight low of $925 to reach its best Dollar-level since March 28th at $945 per ounce as Wall Street opened for business.
The Dollar dropped towards ¥100 and $1.98 per Pound, while the Euro shot to $1.5965 – almost two cents up for the session so far – as traders bet the ECB cannot cut its interest rates anytime soon.
Food prices across the 15-nation Eurozone rose 6.2% from March last year, the EuroStat agency said today.
But in Italy – where the International Monetary Fund (IMF) now predicts economic growth of just 0.3% in both 2008 and 2009 – the newly returning prime minister, Silvio Berlusconi, says he will force rate cuts by joining forces with French president Nicholas Sarkozy, a long-time critic of ECB policy.
"A very strong Euro is hurting Italy's economy," said Berlusconi late Tuesday. "I will discuss intervening with the ECB with Sarkozy."
The ECB has already retaliated, with policy-maker Jurgen Stark saying "I would recommend to political leaders in Europe, newly elected and re-elected, to read the European law on the ECB [independence]."
Former chief economist at the central bank Otmar Issing also says the ECB is certain to fight this "intolerable" rate of inflation.
"Oil prices have reached record levels and the Dollar's hit a record against the Euro," notes Suki Cooper at Barclays Capital in London.
"There is a lot of inflationary concern [and that] remains very positive for Gold Prices."
In the broader markets today Wall Street stock futures pointed higher despite a 50% drop in first-quarter earnings from J.P.Morgan – the third largest US bank.
European equities held onto a 1% gain while government bond prices fell, pushing open-market interest rates four basis points higher to 3.54% on the two-year German bund.
The rate of return offered by Italian bonds has risen steadily since Berlusconi was returned to power at the weekend, moving in line with the Eurozone's weakest major economy, Greece.
Yet analysts including Stuart Bennett – senior Euro strategist at Calyon in London – still believe that Eurozone inflation "will moderate" without any change in ECB policy, enabling the central bank to cut rates and tackle the on-going banking crisis later in 2008.
The Gold Price in Euros today moved above €592 per ounce, its highest level so far this April.
For British consumers now suffering their worst fall in Sterling exchange rates since the house-price crash of 1989-1992, the price of Gold rose to a one-month high above £478.