Gold higher as U.S. consumer prices rise, dollar drops

Gold prices rose on Tuesday, breaking their two day streak of heavy losses, amid a broad dollar drop and data showing climbing US consumer prices. Gold has rallied near $200 an ounce in the last two months due to hopes that the Fed's monetary stimulus might trigger inflation.

By Frank Tang
Tue Oct 16, 2012 2:56pm EDT
Reuters

Gold rose on Tuesday to snap two days of hefty losses lifted by a broad dollar drop and by data showing U.S. consumer prices climbed but not enough to derail the Federal Reserve's ultra-easy monetary policy.

The metal rebounded from Monday's one-month low, after U.S. Labor Department said U.S. Consumer Price Index climbed 0.6 percent in September, matching analysts' expectations and August's reading. Solid gains in U.S. equities .SPX also underpinned bullion.

Gold has rallied $200 an ounce in the last two months due to hopes that the Fed's monetary stimulus might trigger inflation. The U.S. central bank said in September it would keep buying mortgage-backed securities until the job market improves dramatically.

"From an inflation standpoint, the fact that the CPI is in line gives the Fed more room to continue easing," said Adam Sarhan, CEO of Sarhan Capital.

Technical buying also boosted gold as it held well above key support of its 50-day moving average (DMA) despite Monday's pullback. Late last month, the metal formed a bullish "golden cross," in which its 50 DMA traded above its 200 DMA.

As long as gold held above its 50 DMA, it stood ready to challenge its next major resistance at $1,800 an ounce, Sarhan said.

Spot gold was up 0.5 percent at $1,744.60 an ounce by 2:05 PM EDT (1805 GMT), well above the previous day's one-month low at $1,728.75. The metal had dropped almost 2 percent in the last two sessions.

U.S. COMEX gold futures for December delivery settled up $8.70 an ounce at $1,746.30, with trading volume at about 45 percent below its 30-day average, preliminary Reuters data showed.

Some analysts said some gold investors stayed on the sidelines due to political uncertainty ahead of a second U.S. presidential debate.

A U.S. "fiscal cliff" of automatic spending cuts and tax increases scheduled for January also triggered some safe-haven bids, traders said. That scenario could shock the economy and lead to more money printing from the Fed.

ETF HOLDINGS EASE

Investors appeared to lessen their bullish bets on gold after Monday's decline. Holdings of bullion exchange-traded funds tracked by Reuters fell on Monday, due to an outflow from the largest gold ETF the SPDR Gold Trust.

The largest silver ETF, the iShares Silver Trust also recorded an outflow of about 0.3 million ounces on Monday.

Other precious metals also rebounded after Monday's sharp pullback. Silver was up 0.6 percent at $32.87 an ounce. On Monday it hit a one-month low at $32.53 an ounce.

Platinum group metals climbed, even though analysts said sentiment remained cautious after Chinese-owned car maker Volvo said it would halt production for a week this month due to continued low demand, especially in Europe.

Spot platinum edged up 0.1 percent at $1,636.74 an ounce, while spot palladium was up 0.9 percent at $635.47 an ounce.

(Additional reporting by Jan Harvey in London; Editing by Marguerita Choy and Bob Burgdorfer)

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