Gold Climbs for Fourth Day as Inflation Fuels Demand for Hedge

Gold advanced for a fourth day on speculation that rising consumer prices will boost investor demand for the metal as a hedge against inflation.

Immediate-delivery bullion rose 0.3 percent to $1,377.97 an ounce at 2:24 p.m. in Singapore. The metal climbed to $1,382.17 an ounce yesterday, the highest price since Jan. 13. Futures for April delivery were up 0.2 percent.

“Gold retains strength to move higher against the backdrop of rising inflation globally,” said Bae Jung Seok, a senior trader at Eugene Investment & Futures Co. in Seoul.

Singapore raised an inflation forecast for 2011 today after the economy grew at a record pace last year. Wholesale prices rose for a seventh month in the U.S. and gained 8.2 percent last month in India. The Bank of England forecast inflation peaking at 4.4 percent this year, more than twice its target.

The United Nations Food & Agriculture Organization’s World Food Price Index rose to a record in January. Food prices have surged to “dangerous levels,” pushing 44 million people into extreme poverty since June, the World Bank said this week.

Weakness in the dollar, which typically moves inversely to gold, also provided some support to the metal, Bae said.

The dollar fell to a one-week low against the euro before reports forecast to show that Europeanconsumer confidence rose and an index of U.S. leading indicators gained, adding to signs the global recovery is strengthening.

‘Downside Risk’

Gold has lost 3.7 percent since touching a record $1,431.25 an ounce on Dec. 7 as investors turned to high-yielding assets including equities as the global economy improved.

“A surprise uptick in inflation could be the impetus for gold prices to head higher,” said Ong Yi Ling, a Singapore- based analyst at Phillip Futures Pte Ltd. “However, we think that current inflationary pressures in the U.S. remain muted.”

Assets in gold-backed exchange traded products fell 0.6 metric tons to 2,016.41 tons yesterday, the lowest level since June 7, data compiled by Bloomberg from 10 providers show. Holdings reached a record 2,114.6 tons in December.

“Physical demand is absent as buyers have been driven away by the higher prices,” Marc Ground, commodity analyst at Standard Bank Plc, wrote in a note. “This opens up a downside risk for gold and silver. The upward momentum is waning.”

Karen Jones, technical analyst at Commerzbank AG, said in a note to clients, that gold won’t attempt to rise to its record in the months to come and will trade between $1,300 and $1,425.

Platinum for immediate delivery was little changed at $1,830.50 an ounce, while spot palladium gained 0.3 percent to $844.25 an ounce, rising to near a decade-high. Silver rose 0.3 percent to $30.725 an ounce.

(Source: http://www.bloomberg.com/news/2011-02-17/gold-may-weaken-on-speculation-rise-to-four-week-high-will-spur-selling.html)