Gold up a 5th day after weak inflation data
SAN FRANCISCO (MarketWatch) -- Gold futures rose for a fifth session on Thursday, after a report on U.S. inflation fanned expectations that the Federal Reserve will embrace fresh monetary-policy stimulus.
Gold for August delivery (GCQ2) ended up 20 cents at $1,619.60 an ounce on the Comex division of the New York Stock Exchange, though well off the contract's intraday high of $1,629.
The consumer price index declined by a seasonally adjusted 0.3% last month, marking the first decrease in two years and the biggest drop since December 2008. Economists surveyed by MarketWatch had expected the CPI, a gauge of inflation at the retail level, to fall by 0.2%. Read more on CPI.
Gold initially fell after the report, as "there continues to be the risk that disinflationary trends will continue to evolve, all of it constraining gold prices into a tight trading range," said Richard Hastings, macro strategist at Global Hunter Securities. Gold often generates buying interest as a hedge against inflation.
However, data released at the same time showed first-time jobless claims unexpectedly increased last week, lending support to speculation that the Fed will in some way ease monetary policy further, possibly as soon as next week. Read more on jobless claims.
"The perception of low price inflation, and even the possibility of deflation that this number hints at, gives the Fed tremendous breathing room for quantitative easing," said Brien Lundin, editor of Gold Newsletter. "A slowing economy gives the Fed a valid excuse for QE3. But a slowing economy combined with a sniff of deflation almost compels them to act."
"While the knee-jerk reaction to today's CPI number was to sell gold, it actually sets the table for a very powerful rally in the metal, should this data prompt the Fed to launch QE3," he said. The U.S. central bank has twice resorted to quantitative easing to help underpin the economy.
The U.S. dollar turned lower following the CPI report, with the dollar index (DXY) , a measure of the greenback against a basket of six major currencies, slipped to 81.940 from 82.126 late Wednesday. Read more on currencies.
A weaker dollar tends to support dollar-denominated prices for gold.
U.S. stocks also rallied, as the data fed into investors' hopes of further moves by the Fed. Read story on U.S. stocks.
Growing speculation of further monetary stimulus including from the European Central Bank as well as the Fed has spurred interest in gold in recent days. Gold prices gained 2% over the past four trading sessions.
The metal is seen as a safe store of value and a hedge against effective devaluation of the dollar, should the Fed implement more quantitative-easing measures, which are considered akin to printing money.
The broader metals complex traded mostly higher Thursday, except for silver.
July platinum (PLN2) gained $20.80, or 1.4%, to $1,487.60 an ounce. September palladium turned up $11.60, or 1.9%, to $634.90 an ounce.
July copper (HGN2) added 0.5% to $3.35 a pound.
Silver for July delivery (SIN2) fell 1.9%, or 53 cents, to $28.41 an ounce
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