Investors were buying stocks and were in wait-and-see mode with gold and silver. Oil prices were volatile as well on reports that showed oil producing areas in Libya, now controlled by rebels, could ramp up production again. Gold and silver have been trading with oil as high energy prices underscored higher inflation.
That inflation thesis is seeing some headwinds Tuesday as China Securities Journal reported that China's central bank could raise rates to tame inflation, which is up 4.9% in February and could rise to more than 5% in March. Main consumer product companies are raising prices from 5% to 15% in April, according to the article. The central bank has already raised rates 3 times in the past year, but at 25 basis points clips, which hasn't done much to change the negative real interest rate environment. "Gold [is] seeing more cautious selling," says George Gero, senior vice president at RBC Capital Markets, "after option expiration last night ... also tightening by China ... are bringing hedge selling." But this time China isn't the only central bank contemplating raising rates. The mood is fairly certain that the European Central Bank could raise interest rates in April, afraid of February's 2.8% inflation rate. Financial troubles still loom large in the EU, however, as one of Spain's largest banks is asking for a $4 billion bailout and long term borrowing costs for Portugal rose to more than 8% on Monday. Standard & Poor's took another swing at Greece downgrading its credit rating two notches with a negative outlook as well as downgrading Portugal's senior debt one notch.