Gold rallies on above-consensus CPI
Polya Lesova
NEW YORK (MarketWatch) -- Gold futures rallied sharply on Wednesday, as higher-than-expected consumer prices in January fueled concerns that inflationary pressures aren't easing, thereby boosting the lure of gold as an inflation hedge. Traders see possibility of further upside for precious metal.
Gold for April delivery surged $23.50 an ounce, gaining by 3.6% to stand at $684.50 on the New York Mercantile Exchange.
"We have the possible makings of a key reversal," said Jon Nadler, an investment-products analyst at bullion dealers Kitco.com. "Traders cannot literally catch their breath to talk to us, but it looks as if all kinds of stops were being hit and whoever went short yesterday got massacred today, if they didn't jump on early enough."
Market pundits are trying to "grasp for news that motivated this leap," Nadler said, with the main factors being the data on the consumer price index for last month as well as persistent worries about Iran's nuclear ambitions.
"Gold's sharp rebound is apparently being driven by short-covering as opposed to any major news or rethink in the markets," said Brian Dolan, director of research at Forex.com.
However, "higher CPI and Iran noise continue to provide a fundamental basis for firmer gold prices," he told clients.
Gold futures began their rally after the Labor Department said inflation at the retail level increased 0.2% in January, while the core CPI, which excludes food and energy prices, rose 0.3%. Economists polled by MarketWatch had been looking for increases of 0.1% and 0.2%, respectively.
Recovering crude-oil prices also boosted gold. Crude futures pivoted off early losses to edge higher, with traders awaiting weekly U.S. stockpiles data to see how the chilly weather of the past week has affected petroleum inventories.
Forecasts for warmer-than-average temperatures across the Northeast for the rest of February kept a cap on gains. Crude for April delivery was last up $1.18 at $60.03 a barrel in its first day as the front-month Nymex contract.
On the currency markets, the yen fell to a one-week low against the dollar, after the Bank of Japan hiked its key interest rates but indicated that further rate increases would be gradual.
On Tuesday, gold closed down $11.80 at $661 an ounce, as the U.S. dollar strengthened and oil traded lower, providing an excuse for traders to lock in gains.
"We see yesterday's fall as just flux on the way toward $700 later in the year, as both physical and investor demand is likely to be strong," said Sherry Cooper, chief economist at BMO Capital Markets, in a morning note.
Other metals prices also rose on Nymex. March silver futures gained 12.5 cents to stand at $13.995 an ounce, April platinum was up 90 cents at $1,220, and March palladium rose 5 cents at $339.80 an ounce. March copper was last up 3.8 cents at $2.624 a pound.
William Adams, analyst at BaseMetals.com, said that the base metals held up better than the precious metals on Tuesday, because there was trade buying interest in the former, while "the precious metals have been pushed higher in recent weeks by aggressive investment interest."
"The market may not have to wait too long to see sentiment turn bullish across the board," Adams said. "Don't forget that the January-February period last year was relatively subdued, and it wasn't until March that the rally took off."
On the supply side, gold inventories were unchanged at 7.49 million troy ounces as of late Tuesday, according to Nymex data. Silver supplies added 272,835 troy ounces to stand at 116.54 million troy ounces, while copper stockpiles rose 274 short tons to reach 36,631 short tons.