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Gold and Silver Jump as Global Inflation Rises

Commodities / Gold and Silver 2011 Feb 15, 2011 - 09:07 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD jumped Tuesday morning in London, hitting $1375 per ounce and setting four-week highs for Dollar, Euro and Sterling investors, as world stock markets again held flat and commodity prices rose.

The silver price rose another 1% to $30.88 per ounce – its best level of 2010 so far.


Major-economy government bonds meantime slipped in price, nudging interest rates higher, after the world's second and fifth largest economies – China and the UK – both reported rising consumer-price inflation.

"Gold's setback at the start of 2011 is on balance likely to be short-lived," says February's edition of Metals Monthly from the VM Group in London, written and published for ABN AMRO Bank.

"In the US, record-low interest rates will remain as long as the Fed struggles to significantly reduce unemployment. In Europe, the rolling debt crisis should continue to create economic uncertainty."

Consumer-price inflation in the UK rose to reach 4.0% year-on-year in Jan., new data showed on Tuesday. That initially disappointed currency traders expecting Sterling to rise in anticipation of higher interest rates. But the Pound then jumped after Bank of England governor Mervyn King admitted "real differences of view" within his policy team in the open letter to the UK chancellor which he's required to write when inflation moves sharply away from the UK's official target of 2.0%.

"[Trying] to bring inflation back to the target quickly risks generating undesirable volatility in output," Dr.King goes on.

The gold price today spiked to £857 per ounce in Sterling, and rose above €32,700 per kilo for Eurozone savers – its highest level since Jan. 20th – as new data showed Eurozone GDP growth and Germany's ZEW economic sentiment survey both coming in below analyst forecasts.

"China’s central bank will be under pressure to tighten monetary policy further," says the VM Group,  but immediate hike seem "unlikely" after the surprise rise made over the Chinese New Year holidays.

New figures released by Beijing late Monday showed consumer-price inflation lagging analyst forecasts in January, rising to 4.9% from Dec.'s 4.6% annual pace.

The National Bureau of Statistics confirmed that it made several changes to its methodology. New Chinese bank lending meantime hit 1.04 trillion Yuan ($151bn) Beijing said, again lagging analyst forecasts.

"The relationship between Chinese inflation and the gold price is perhaps tenuous," says VM, "but we are of the view that it can only be bullish for the gold price as the metal’s allure as a store of wealth increases."

On the political front, meantime, members of the Iranian parliament called for the execution of opposition leaders after Monday's demonstrations in Tehran – "very clearly and directly" supported by US secretary of state Hillary Clinton – left one protester dead.

Yemen also saw another anti-government rally, and a man in Bahrain, attending the funeral of a protester shot dead yesterday, was reportedly shot dead by security forces.

Prime minister Silvio Berlusconi of Italy – where the interior ministry today called for Europe-wide action on the influx of refugees from Tunisia – was indicted for abuse of power and paying for sex with an under-age girl.

"Rising tensions and the threat of political instability spreading across the MENA region [middle East and near-Asia] has dampened appetite for risk and seen renewed safe-haven buying of precious metals," says today's note from Standard Bank.

"The lower-than-expected print of China’s consumer inflation has also emboldened investors as fears of monetary tightening – and consequently lower global liquidity – have eased."

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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