Gold price spikes on inflation worry

Gold prices rose to a four-week high overnight as inflation worries sparked a technical breakout, and as Chinese data curbed expectations for further interest rate hikes there.

Bullion investor sentiment improved after US regulatory filings confirmed that top hedge fund mangers, such as John Paulson and George Soros, held their big bets on gold in the fourth quarter of last year.

"The inflation mentality is beginning to take hold more, and that sparked gold's rise today," said Adam Hewison, president of MarketClub.com.

Gold benefited after data showed inflation in Britain jumped to twice the Bank of England's target in January.

In China, lower-than-forecast inflation eased pressure for an imminent rate hike, which would weigh on gold, but price pressures excluding food were their strongest in at least a decade.

Spot gold rose 0.9 per cent to $1374.20 an ounce, having earlier hit a four-week high at $1376.50.

US gold futures for April delivery settled up $9 at $1374.10 an ounce.

Silver gained 0.6 per cent to $30.78 an ounce. Holdings of the world's largest silver-backed ETF, New York's iShares Silver Trust, rose on Monday by 22.78 tonnes, their biggest one-day rise since Jan. 24.

US filings showed that hedge funds largely shed positions in the No. 1 silver ETF in the fourth quarter.

The gold-silver ratio - the number of silver ounces needed to buy an ounce of gold - held below 45, a key area near its lowest level in five years, despite gold's outperformance over silver overnight.

Gold was on track for a third week of gains, recovering from the losses it made in January, when rising appetite for risk fuelled buying of higher-yielding assets.

"Some risk aversion has returned - some euro zone jitters with WestLB and ECB buying of Portuguese bonds last week, and the unsettled Middle Eastern situation," said Credit Agricole analyst Robin Bhar.

Some analysts called gold's rally a technical breakout as bullion broke above key resistance at its 50-day and 100-day moving averages.

MarketClub's Hewison said his technical models showed that a buy signal was triggered when prices rose above $1368 an ounce, after breaching the 100-day moving average at $1365.

A softer dollar initially underpinned the precious metal, although the usual inverse relationship between the two assets has been erratic recently.

Data released earlier showed Chinese inflation at a lower-than-expected 4.9 per cent in January, curbing expectations for further rate rises from China's central bank. Lower interest rates tend to support gold buying.

"On the face of it, it's a good number, but, when you look at the detail and what they have done to the basket, you might think it was going to come in lower anyway," said Bhar.

"Probably for gold this is bullish, because inflation is running higher than this rejigged (data) is showing," he said.

Some pressure also has come off gold after outflows from exchange-traded funds backed by the precious metal petered out. Holdings of the largest gold ETF, New York's SPDR Gold Shares, have held steady for the past three sessions.

ETF Securities, a provider of exchange-traded funds backed by physical metal, and asset manager BlackRock estimated that investors pulled just over $2 billion from commodity exchange-traded products in January.

Platinum gained 0.2 per cent to $1,828.50 an ounce, while palladium climbed 0.7 per cent to $837.50.

Palladium rallied to a decade high at $847 an ounce before drifting lower. Reduced expectations that China will tighten monetary policy has supported industrial commodities such as platinum group metals, which are chiefly used in catalytic converters.

(Source: http://au.news.yahoo.com/thewest/business/a/-/world/8845922/gold-price-spikes-on-inflation-worry/)