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Posted on April 15, 2011
Gold gained to a record and silver climbed to the highest level in 31 years as inflation in China accelerated more than forecast, underscoring the challenge that central bankers worldwide face in combating rising prices.
Immediate-delivery bullion, which has rallied every year since 2001, gained as much as 0.4 percent to $1,479.35 an ounce and was at $1,474.45 at 11:30 a.m. in Singapore. Gold for June delivery in New York climbed to an all-time high of $1,480.50.
Consumer prices in the second-largest economy jumped 5.4 percent in March, marking the fastest growth since 2008. Federal Reserve Bank of Richmond President Jeffrey Lacker said yesterday policy makers were too slow to withdraw stimulus last decade and should tighten credit this time before U.S. inflation picks up too much. European and U.S. inflation data is also due today.
“Inflation is the key word to investors,” Park Jong Beom, a Seoul-based trader at Tongyang Futures Co., said before the Chinese data, which also showed China’s economy grew 9.7 percent in the first quarter. “Gold will test $1,500 next week.”
Gold has rallied for a decade on increased investment demand for commodities and concern that currencies may be debased as central banks stimulate their economies. Unrest in the Middle East and Japan’s nuclear crisis have also bolstered sales this year as investors seek a store of value.
Taming prices is the Chinese government’s top priority, the cabinet said this week. Billionaire investor George Soros, chairman of Soros Fund Management LLC, said on April 10 that inflation in China was “somewhat out of control.” Economists had expected a March inflation rate of 5.2 percent, according to the median forecast in a Bloomberg survey.
‘Inflation Is Here’
“We see more and more signs indicating that people are waking up to the fact that inflation is here,” Monty Guild, chief executive at Guild Investment Management Inc., wrote in a note before. “Real assets are in demand, driven by growing wealth in emerging countries, depreciation of the world’s reserve currency, and fears of supply disruptions and shortages as revolutionary fervor spreads throughout the Middle East.”
Cash silver climbed as much as 0.6 percent to $42.4225 an ounce today, the highest level since 1980. The metal is the second-best performer over the past year on the UBS Bloomberg CMCI Index, lagging behind only cotton.
The rally in precious metals boosted mining companies’ shares. Zijin Mining Group Co., China’s biggest gold producer by market value, gained as much as 2.1 percent to HK$6.41 in Hong Kong, while Newcrest Mining Ltd. (NCM), Australia’s largest, rallied as much as 2.4 percent to A$41.69.
The dollar touched a 16-month low against six major currencies this week as the Federal Reserve lags behind the European Central Bank in tightening policy. The ECB raised interest rates last week in the first gain in almost three years to keep inflation below a 2 percent ceiling.
Gold will climb to $1,600 an ounce this year, according to researcher GFMS Ltd. Total gold demand gained for a third consecutive year in 2010, aided by a 66 percent jump in sales of bars, particularly in China, the researcher said this week.
The threat of rising inflation is “front of mind for many investors,” said Marc Ground, an analyst at Standard Bank Plc in Johannesburg. The weaker dollar is “broadening the appeal of precious metals as an alternative investment.”
The leaders of Brazil, Russia, India, China and South Africa said yesterday that excessively volatile commodity prices pose a threat to the global economy. Food costs reached a record in February, according to a United Nations’ gauge.
“Commodities, including gold, will continue to be the focus of investors,” said Gavin Wendt, an analyst at MineLife Pty. Escalating oil, which is fueling inflation pressure, is one of the drivers in gold’s rally, he said. Crude oil in New York has surged 27 percent over the past year.
China’s central bank has raised rates four times since early October to combat accelerating prices. “Inflation remains the top risk,” Yao Wei, a Hong Kong-based economist at Societe Generale SA, said before today’s release.
The Fed has kept the benchmark rate in the world’s largest economy at zero percent to 0.25 percent since December 2008 as well as buying Treasuries to stimulate growth. Federal Reserve Bank of Richmond President Lacker told reporters yesterday the central bank’s method of exiting record monetary stimulus by raising interest rates or selling assets isn’t yet “settled.”
The U.S. consumer-price index climbed 0.5 percent in March, matching the previous month’s reading, which was the biggest gain since June 2009, a survey showed before the Labor Department data today.
The difference between yields on U.S. 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for inflation, widened to as much as 2.66 percentage points this week, the most since March 2008. The Thomson Reuters/Jefferies CRB Index of 19 commodities rose this week to the highest since September 2008.
To contact the reporters on this story; Kyoungwha Kim in Singapore at firstname.lastname@example.org; Nicholas Larkin in London at email@example.com
To contact the editor responsible for this story: James Poole at firstname.lastname@example.org