Gold steadies after U.S. inflation data

LONDON (Reuters) - Gold steadied on Wednesday, recovering earlier losses, as traders put aside initial concerns that a surprise drop in U.S. inflation could point to a more sustained phase of falling prices, denting gold’s allure as an inflation hedge.

Gold rings are put for sale at a jewellery shop in Suining, Sichuan province March 20, 2009. REUTERS/Stringer

The dollar’s nudge off highs against the euro also relieved downward pressure on gold, which is often bought as an alternative investment to the U.S. currency.

Prices remain rangebound amid conflicting signals on inflation and the outlook for equities, analysts said.

Spot gold was bid at $890.25 an ounce at 1522 GMT (11:22 a.m. EDT) against $888.85 late in New York on Tuesday. U.S. gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose 10 cents to $891.00 an ounce.

U.S. inflation data for March showed a dip of 0.1 percent in the consumer price index, against expectations for a rise of 0.1 percent. Consumer prices recorded their first annual drop since 1955.

“Short term, these figures are obviously not bullish for gold, but in the longer term you have to look past the current fall in inflation,” said Standard Bank analyst Walter de Wet.

“With all the quantitative easing and low interest rates, inflation is going to head up again. That is why gold only moved a few dollars.”

The precious metal is often bought as a hedge against rising inflation, and prices can be dented by deflationary signals.

On the foreign exchange markets, the dollar edged a touch off the session highs it reached versus the euro in the wake of the numbers, but remained stronger.

A firmer dollar tends to weigh on gold, which is often bought as an alternative investment to the U.S. currency.

The euro earlier fell against the dollar after European Central Bank Governing Council member Axel Weber said the central bank will announce a package of “non-standard measures” in May.

Equity markets also moved higher, helped by a better-than-expected report on manufacturing activity in New York state.

Gold remains largely rangebound as buyers await clearer signals on the outlook for the financial sector and the equity markets. Any rise in risk aversion is likely to benefit gold.


“We are stuck in a range here,” said Saxo Bank senior manager Ole Hansen.

“As we are trading sideways, obviously technical levels will have an impact,” he said. “Above $900 (we could) move up to $918, and below $885 we could see some selling return to the market, which could take us down to $865, and maybe to $850.”

Investment demand remains tentative, with holdings of the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, unchanged on Tuesday from last Thursday.

“With further strong resistance anticipated around $900, upside momentum may be curtailed until ETF and investment demand picks up again,” said analyst James Moore.

However, gold demand in India, the world’s largest bullion market, firmed as traders stocked up ahead of the Hindu festival of Akshaya Tritya on April 27.

Among other precious metals, spot platinum was bid at $1,214 an ounce against $1,204 late on Tuesday, while spot palladium was bid at $231 an ounce against $230.

The two metals are consolidating after gains that took them to multi-month highs, after ETF Securities filed to register the first ETFs backed by platinum and palladium in the U.S. market.

Spot silver was bid at $12.73 an ounce against $12.72.

Rhodium, used in autocatalysts, also climbed 9 percent, helped by gains in other platinum group metals and amid hopes the downturn in the car industry may be bottoming out.

Reporting by Jan Harvey; Editing by Keiron Henderson