Inflation Data Clip Gold

Gold prices were moving down slightly Tuesday after a new government report showing relatively tame consumer price increases reduced demand for the metal as an inflation hedge.

June-dated bullion contracts were losing $1.40 at $693.10 an ounce in New York. The exchange-traded funds streetTracks Gold Shares(GLD Quote) and iShares Comex Gold Trust (IAU Quote) were off about 0.2% recently.

The Labor Department says the core rate of inflation, which excludes volatile food and energy components, fell to 0.1% in March from 0.2% in February.

"The Federal Reserve has been forecasting that inflation would move back into its comfort zone on its own," without the need to tighten monetary policy, says Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh. "It's not yet in their comfort zone, but its getting close to that."

Fed policymakers are believed to want to keep consumer price inflation below 2% a year. News of lower inflation will likely dampen demand for gold, which some investors purchase to offset the asset-withering effects of rising consumer prices.

Turning to the technical side, Jon Nadler, an analyst at Montreal-based bullion dealer Kitco, sees gold prices consolidating for a while before any further spike higher.

In the interim, he sees resistance kicking in at around $695 to $700 on the June contract, with support down around $673. Bullion prices have rallied from slightly above $600 an ounce in early January.

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