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Gold Bulls Display Mettle

Contracts for April delivery soar $23 to $684 an ounce.

News of rising inflation in the U.S. and cautionary comments from

Federal Reserve

Vice Chairman Donald Kohn had gold futures surging Wednesday.

Contracts for April delivery of gold closed $23 higher at $684 an ounce on the Comex divison of the New York Mercantile Exchange. The bullion exhange-traded funds that hold the metal,

streetTracks Gold Shares

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iShares Comex Gold Trust

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, were litfting also, up 3% recently.

The Labor Department says its consumer price index rose 0.2% during January, twice the consensus forecast of a 0.1% increase but down from 0.4% in December. The core rate, which excludes the volatile food and energy components, advanced 0.3% vs. expectations of a 0.2% rise, and up from 0.1% previously.

"The upside surprise in the headline and core number will keep the market a bit on edge until we get to see the

personal consumption expenditure deflator next week," writes Joe Brusuelas, chief U.S. economist at IDEAglobal in New York, in a research brief.

The not-so-tame CPI data likely increased investor interest from those looking to buy gold as a hedge against a generally rising price level. Bullion had a significant downturn Tuesday, as spot prices dropped $10 in London.

But what really stoked things up appeared to be a comment from the Fed's Kohn who said: "It would be imprudent to rule out sharp movements in asset prices and deterioration in market liquidity," that could test the resiliency of the financial system.

Gold is also often purchased as a safe haven by investors during times of economic uncertainty.

The CPI data will likely also be bullish for the greenback because it reduces the near-term chances that the Fed will cut interest rates.

One dollar was recently buying 121.01 yen, up from 119.99 yen in the prior session. One euro was buying $1.313, down from $1.3139 previously. Gold tends to trade in the opposite direction to that of the U.S. currency.

Meanwhile, turning back to gold, the outlook from chart-watchers remains optimistic.

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"We are at the upper end of resistance, and that gives a more positive shorter-term technical picture," says Adolfo Rueda, an analyst at Natexis Bleichroeder in New York. He notes that prices are above their moving averages, which in turn are still trending upward. He believes prices could surpass last year's multidecade high of $725.75 in short order, now that resistance at around $675 has been broken.

In the official sector, the European Central Bank says it sold 90 million euros of gold and receivables last week, or about 5.5 tons.

As for the action in the precious metals patch, the Chicago Board Options Exchange Gold Index was lifting 3.7%, pulled up in part by shares of component company

Agnico-Eagle Mines

(AEM) - Get Agnico Eagle Mines Limited Report

, which rose 5.1%. Shares of

Kinross Gold

(KGC) - Get Kinross Gold Corporation Report

, also part of the index, were rising 4% recently.

Silver producer

Hecla Mining

(HL) - Get Hecla Mining Company Report

reported improved profits, lifting the stock 9% in recent action.

Turning to base metals, copper contracts were up 6 cents at $2.66 a pound on the Comex. Consumption of the red metal in Asia is helping keep a floor under prices. "Chinese copper imports have accelerated due to inventory restocking," states a weekly research brief from San Antonio-based money managers U.S. Global Investors.

Elsewhere, Friedman Billings Ramsey upped its price forecast on shares of

Century Aluminum

(CENX) - Get Century Aluminum Company Report

to $55 a share from $47. The company reported lower losses after the close Tuesday.

In addition, Merrill Lynch raised its full-year earnings estimates for Century. But the stock barely moved, up 0.1% recently at about $49.