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Gold Prices Lower On Inflation Sentiment

By Dave Brown — Exclusive to Gold Investing News

Gold prices traded almost $58 lower to the range of $1,620.40 per troy ounce on Wednesday, a decline of approximately 15 percent since last September's all-time high. Strangely it occurred on a day when overall capital market sentiment was low, with the Dow Jones Industrial Average losing 125 points. Typically, this scenario would have been a catalyst to support gold positions as a protective investment.

The minutes from a Federal Reserve meeting suggest that it believes inflation remains under control. The outlook from the committee is, “[w]ith longer-run inflation expectations still well anchored, most participants anticipated that after the temporary effect of the rise in oil and gasoline prices had run its course, inflation would be at or below the 2 percent rate that they judge most consistent with the Committee's dual mandate." According to the statement the economy has picked up, and worst-case scenarios in the United States and Europe have faded.

Weaker gold prices from Wednesday's trading session have stimulated some investment interest in gold positions, with gold trading in the range of $1,629.30 per troy ounce. Overall, spot market gold prices have depreciated by about two percent this week.

For investors, a major driver of gold prices over the next few days might be the anticipated release of US jobs data. With gold broadly trading in line with risk assets, a stronger-than-expected number could increase buying. A disappointing result is likely to stimulate downside pressure on gold prices.

Misplaced faith in the Federal Reserve

James Grant, founder of Grant's Interest Rate Observer, recently discussed his critique of the Federal Reserve's central banking system. Looking at the prolonging symptoms of the recession and indicating a bearish sentiment for China's long-term outlook, he commented, “I like gold because gold price is the reciprocal of the world's faith in the central bankers. The faith is misplaced; therefore I say gold has more upside. Gold mining and silver mining shares have been hard hit for a while now and I think there is more value in them even than there is in the metals.”

This is of interest for investors as Grant is a very well-reputed journalist and was even been named by US Republican candidate Ron Paul as the most probable candidate to replace Ben Bernanke as Federal Reserve Chairman when his term expires in 2014.

Company news

AuRico Gold Inc. (TSX:AUQ,NYSE:AUQ) announced a status update on its Young-Davidson mine located in the prolific Abitibi gold belt in Northern Ontario. Wet commissioning has been completed and ore processing has commenced, which means that the team can now fully test the various systems prior to commencing 24-hour operations. The Young-Davidson project is nearing completion of the pre-production construction phase, with the mill processing construction required for commissioning virtually complete. The company expects the first gold pour for the project to occur this month.

Junior company news

Colossus Minerals Inc. (TSX:CSI,OTC Pink:COLUF) announced development updates for its Serra Pelada project. The company is expecting to commission the second underground drill later in the second quarter of this year.

Helio Resource Corp. (TSXV:HRC) filed a NI 43-101 report for its SMP gold project in Tanzania on SEDAR.

Eagle Hill Exploration Corp. (TSXV:EAG) announced that it will be releasing additional drill results from its Windfall Lake project. A 25,000 meter drill program is ongoing at the property and the company is hoping to continue the expansion of the Caribou gold zone.

Sutter Gold Mining Inc. (TSXV:SGM) reported the latest construction updates from its Lincoln project located in the Mother Lode Gold Belt in Amador County, California.

 

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