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By Tatyana Shumsky
A BURST of safe-haven purchases carried gold prices to positive territory today.
The thinly traded February-delivery contract settled up $US9, or 0.7 per cent, at $US1373.60 per troy ounce on the Comex division of the New York Mercantile Exchange.
The most actively traded contract, for April delivery, settled up $US9, or 0.7 per cent, at $US1374.10 per troy ounce.
Investors sought refuge in gold futures after monthly data showed Britain’s annual rate of inflation reached 4 per cent in January, double the Bank of England’s target. Gold is perceived as a store of value in times of high inflation.
The news saw gold nudge against resistance levels, an indicator followed by technical traders and trading algorithms. Breaking above these price levels could jump-start gold’s stalled rally.
“It’s a tipping point sort of day from a technical perspective. If we can consolidate in the $US1370s, we could see new buying emerge,” said Frank McGhee, head precious metals dealer at Integrated Brokerage Services.
Gold’s record-breaking bull run stalled in January, when prices tumbled 6.1 per cent as expectations of a stronger-than-expected recovery saw investors shed safe-haven assets such as gold in favour of riskier investments such as equities.
Now rising inflation rates in Europe are fanning similar concerns across the Atlantic, with risk tolerance ebbing among US investors ahead of this week’s consumer price index release for January.
“It’s only a matter of time, when you hold interest rates at these lows levels, that inflation rears its ugly head,” said Matt Zeman, head of trading at LaSalle Futures in Chicago.
“That’s going to have people scrambling for that inflation hedge, and they’re going to go to hard assets like gold and oil.”
Gold prices have rallied about 25 per cent since last year as central banks in Europe and the US kept interest rates near zero and injected additional liquidity into the financial system in a bid to spur economic recovery.
But these programs also risk driving up inflation rates, leading many investors to seek safe harbour in gold.
