Gold and silver received some help from a weaker U.S. dollar. The U.S. dollar index was lower by 0.34% to $75.86. The dollar was under pressure from a stronger euro as Ireland's central bank said its largest banks would need to raise € 24 billion, less than a Bloomberg analyst poll showed. Ireland is also struggling with high loan rates from its € 67.5 billion bailout from the EU/IMF stability fund as the country refuses to raise its corporate tax rate. Portugal was also still in the spotlight after its 2010 budget deficit accounted for 8.6% of its GDP. The expectation was for 7.3% and its goal for 2011 is to reduce its deficit to 4.6% of GDP, which will be harder now following the resignation of the Prime Minister and uncertainty in the government. Portugal's long term borrowing rate rose to 8.244% on Wednesday.
Despite all the problems, the euro is finding support on the expectation that the European Central Bank will raise interest rates when it meets next Thursday after Eurozone inflation picked up to 2.6% in March, hotter than expected. In theory, a rate hike could hurt gold prices if the negative real interest rate environment is reversed. That scenario, however, seems unlikely. The deposit rate at the ECB is 0.25% and with inflation at 2.6%, real interest rates are negative 2.35% -- meaning it would take several severe rate hikes to change the rate environment for gold. If the ECB does raise rates, the expectation is that it will be gradual in order to not stunt growth. If there is a hike, gold prices could take a hit "we may see some profit taking in gold," says Will Rhind, head of US operations for ETF Securities. "However, I think that will be offset by safe haven buying and this fear of inflation."