Gold Rises on Latest Inflation Worries

Benchmark bullion futures rise $8.90 to $914.70 an ounce in recent action on the Comex.
By Simon Constable ,

Gold prices continued climbing Tuesday as the greenback sank further, oil prices hit another all-time high and new data showed a spike in producer price inflation.

Benchmark bullion futures were up $8.90 at $914.70 an ounce in recent action on the Comex division of the New York Mercantile Exchange. Gold prices tend to move higher over time as the value of the greenback declines.

The

streetTracks Gold Shares

(GLD) - Get Report

, an exchange-traded fund that holds bars of solid gold, was up 1%. The ETF now holds about 584 tons, or $17 billion, of the metal.

"What we are seeing is some inflation-related hedging at the moment," says James Moore, an analyst at

TheBullionDesk.com

in London. "We now have crude

oil above $129 a

barrel, and we've also seen the PPI numbers: The core number was double what was expected."

The Bureau of Labor Statistics said the producer price index, which measures the rate of inflation at the wholesale level, grew 0.2% in April. But when the volatile food and energy components were excluded it jumped 0.4%, twice the rate the consensus had expected.

Why Silver Might Outshine Gold

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On top of that, crude oil was recently trading around $129.59 a barrel, its highest price ever, raising concerns that inflation worries might continue into the future. Oil is seen as a key driver in the cost of goods and services around the economy.

Some investors purchase gold as a hedge against the withering effects of inflation on the purchasing power of financial assets, so news of inflation tends to lead speculators to bid up bullion prices.

As for the precious metals patch,

Newmont Mining

(NEM) - Get Report

was up 1.7%, while

Yamana Gold

(AUY) - Get Report

was 3.3% higher, both buoyed by the higher gold price.

Elsewhere in gold stocks,

Gold Fields

(GFI) - Get Report

was bucking the general trend in the group, down 0.9% after news that the company will increase its stake in

Sino Gold

.

In the foreign-exchange market, one euro was buying US$1.564, vs. $1.55 on Monday. One dollar was trading for 103.86 Japanese yen down from 104.34 yen previously. The British pound was selling for $1.9683 vs. $1.9479.

The

CurrencyShares Euro Trust

(FXE) - Get Report

and the

CurrencyShares Japanese Yen Trust

(FXY) - Get Report

were rising 1.1% and 0.8%, respectively. The

CurrencyShares British Pound Sterling

(FXB) - Get Report

was up 1%.

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