February 17, 2011 / 11:03 AM / 9 years ago

Gold hits 5-week high on inflation, rising tension

NEW YORK (Reuters) - Gold prices rose on Thursday for a fourth day, their longest winning streak since September, as U.S. consumer price data stoked worries over inflation, adding fuel to safe-haven buying due to flaring Middle East tensions.

Bullion’s gains sparked strong investment buying in silver, which rallied to a 31-year high, further widening silver’s gains over gold and sending the gold-silver ratio to a near five-year low.

Gold buying was underpinned after data showed U.S. core consumer prices rose 0.2 percent in January, the fastest pace in more than a year, indicating a long period of slowing inflation had run its course. Earlier this week, strong Chinese core inflation had also boosted gold.

“The CPI data showed there is a lot of inflation around now. Certainly, inflation and the concern about the Middle East in general are very supportive factors,” said Bruce Dunn, vice president at bullion dealer Auramet.

Safe-haven buying increased as unrest spread across the Middle East and North Africa, after Bahrain on Thursday launched a swift military crackdown on anti-government protesters and clashes were reported in Libya and Yemen.

Gold was set for its strongest weekly performance this year, recovering from January when it notched the biggest monthly decline in six months, as investor appetite was rekindled by rising political tensions. Other safe-haven investments like the Swiss franc and U.S. Treasuries also rose.

Spot gold rose to a five-week high at $1,384.65 an ounce and was up 0.7 percent at $1,384.19 an ounce by 3:14 p.m. EST.

U.S. gold futures for April delivery settled up $10 at $1,385.10, with volume about 55 percent below its 30-day norm. That was in line with recent lower-than-normal turnover, a possible sign of dwindling trading interest.

Silver hit a session high of $31.77 an ounce and was up 3.6 percent at $31.73 an ounce.

“Good physical buying for silver on strong industrial and retail coin and bar demand are underpinning the market,” said Auramet’s Dunn.

The gold-silver ratio -- the number of silver ounces needed to buy an ounce of gold -- fell to below 44, a key area near its lowest level in five years, as silver has outperformed gold. (Graphic: link.reuters.com/bec28r)

Year to date, silver was 3 percent higher, swinging into positive territory with Thursday’s rally, while gold was still 2.5 percent lower.

Gold and silver also benefited from a broad decline of the dollar versus a currency basket .DXY after data showed U.S. new unemployment benefit claims climbed faster than forecast last week.

The technical picture has also sharply improved this week, with prices breaching key resistance levels, including bullion’s 50-day and 100-day moving averages, analysts said.


Analysts said the metal could potentially rise further on safe-haven demand as unrest spread across the Middle East after protests earlier in the year unseated leaders in Tunisia and Egypt.

The prospect of rising inflation, not only in areas currently affected by the phenomenon such as China and India, but also in the United States and Europe, has become an oft-cited reason to hold gold in recent weeks.

“The mood of the market is that an inflation story, a war story, an Egypt story, a Bahrain story will all be bullish for gold, because the market is looking for those at the moment,” said ANZ Bank analyst Peter Hillyard.

In the physical market, the World Gold Council said overall demand for gold is likely to remain firm this year, driven by buying from India and China, as it released a report showing bullion consumption hit a 10-year high in 2010.

Palladium eased 0.4 percent to $841.09, and platinum rose 0.9 percent to $1,843.

(Additional reporting by Jan Harvey and Amanda Cooper in London; Editing by Walter Bagley)

Prices at 3:19 p.m. EST


CLOSE CHG CHG CHG US gold 1385.10 10.00 0.7% -2.6% US silver 31.570 0.941 0.0% 2.0% US platinum 1844.00 9.70 0.5% 3.7% US palladium 843.00 4.65 0.6% 4.9%

Gold 1384.18 9.98 0.7% -2.5% Silver 31.74 1.11 3.6% 2.9% Platinum 1841.74 15.00 0.8% 4.2% Palladium 841.09 3.12 0.4% 5.2%

Gold Fix 1379.00 2.00 0.1% -2.2% Silver Fix 30.61 -16.00 -0.5% -0.1% Platinum Fix 1834.00 8.00 0.4% 6.0% Palladium Fix 839.00 2.00 0.2% 6.1%

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