Gold Doesn't Fear a Fed Rate-Hike Pause

Gold closed higher on Thursday, despite a CPI report and other data that convinced many inflation is not a problem and that the Federal Reserve will cease raising interest rates sooner rather than later.

But gold, which serves as a hedge against inflation, still found cause to rally. First, the dollar took a hit after the CPI report. The Fed's 20-month-long campaign to raise rates has provided key support to the greenback. Gold, which is priced in dollars, normally rises when the dollar drops, as it takes more money to buy the same amount of the precious metal.

Second, crude oil prices, which gold has been tracking recently, jumped $1.41, or 2.3%, to $63.58 per barrel after the U.S. launched its largest air attack in Iraq in three years.

The result: Gold for April delivery gained $1 to $555.40 per ounce, marking its fourth straight session of upside, for a total gain of $14.10.

The metal's advance didn't do much for gold-mining stocks, which have remained depressed since gold took a corrective turn in February. The Amex Gold Bug Index dropped 1.2%, led by big declines in El Dorado (EGO Quote), Gold Fields (GFI Quote) and Hecla Mining (HL Quote).

The CBOE Gold Index dropped 0.7% and the Philadelphia Gold and Silver Index fell 0.8%.

News of the Iraq attack also helped erase some of the early gains for stocks. The Dow Jones Industrial Average rose 43 points, or 0.4%, to 11,253. The S&P 500 rose 0.2% to 1305, but the Nasdaq Composite dropped 0.5% to 2299.

Rate-sensitive issues, such as homebuilding stocks, were sharply higher, however. The Philadelphia housing sector index rose 1.6%, lifted by strong gains in the likes of Toll Brothers (TOL Quote), Standard Pacific (SPF Quote) and KB Home (KBH Quote).

Wither M3?

Apparently, there's more to the story behind gold's resilience than tame inflation. Gold bugs love a good conspiracy theory, and they actually have a fairly convincing one.