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Gold Hits Fresh Record High Consistent with Rising US Inflation

Commodities / Gold and Silver 2011 Apr 28, 2011 - 12:26 PM GMT

By: Adrian_Ash


WHOLESALE PHYSICAL gold investing extended last night's strong price gains on Thursday in London, heading into the second 4-day weekend in succession at fresh all-time highs above $1534 per ounce as new US data showed inflation accelerating sharply.

Major-economy government bonds all rose, nudging yields lower, after the Federal Reserve last night held US interest rates near zero for the 28th month in succession.

The US Dollar fell to the lowest level since July 2008 – just prior to the Lehman Bros' collapse – on its trade-weighted index. Crude oil rose to new 31-month highs.

Silver prices jumped 8.5% to erase almost all of this week's drop from fresh 31-year records.

European stock markets held flat overall, with London's FTSE-100 falling as the UK headed into another long Bank Holiday weekend.

"Taken together, Bernanke's remarks were consistent with our forecast for no rate hikes for a long time to come," says a note from Goldman Sachs.

"The Fed's announcement was as expected," agrees the commodities team at Standard Bank today. "[So] our view on gold remains the same...upside towards year-end is a strong possibility, given that real interest rates remain low, government borrowing is high and global liquidity though easing is still growing."

"The tone from the Fed remains dovish," says Deutsche Bank's Daniel Brebner, speaking to Bloomberg, "resulting in further weakness in the US Dollar.

"Inflationary threats may be seen to be building as the Fed continues to sit on the sidelines," says Brebner, pushing more money into silver and gold investing today.

Hosting his first-ever rate-decision press conference, Fed chairman Ben Bernanke last night downgraded the central bank's 2011 projections for both economic growth and unemployment, but unveiled a rise in the Fed's inflation forecasts – up from 1.7% to perhaps 2.8% at the upper end.

Jan-March saw domestic price inflation jump to 3.4% year-on-year, however, according to new GDP data released Thursday morning – the strongest reading since fall 2008.

Economic growth slowed to 1.8% annualized in the first quarter of 2011.

"Longer term, we can still see a case for gold and I can imagine us going back into it," says UK multi-fund investing manager Scott Spencer at Aberdeen Asset Management, speaking to FundWeb.

"But the current run led to us moving out of the asset," he says of the 5% gold investing allocation previously held in his £800 million ($1.3bn) funds and split between the Blackrock mining-stock and gold-backed ETF trust funds.

"We may look at it again if it goes towards the $1,300 an ounce mark."

For UK investors and savers today, the spot gold price in Sterling retouched Wednesday night's high above £920 per ounce, just shy of last week's new all-time high at £921.50.

Eurozone investors wanting to buy gold saw the price reverse the last of this week's 1.4% drop, trading back above €33,200 per kilo.

"Negative news-flow from the Eurozone debt crisis still fails to undermine" the Euro/Dollar exchange rate, says says Standard Bank's forex investing strategist Steve Barrow.

"[But] we feel that [a] deterioration in the Eurozone debt crisis will coincide with a tweaking of the Fed’s monetary message" and knock the Euro currency down to $1.20. "What's that the Fed signals that the era of free [US] money might be coming closer to an end."

By Adrian Ash

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 , 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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