Gold rose for a second day on signs that investors are buying the precious metal as an alternative to a slumping dollar.
The U.S. currency fell for a second day against the euro as Greece moved closer to completing its debt swap. European Central Bank President Mario Draghi said inflation will probably breach the bank’s 2 percent limit this year even as the economy stalls. The ECB kept its benchmark interest rate at a record low of 1 percent. The MSCI All-Country World Index (MXWD) jumped as much as 1 percent
“It finally looks as if Greece will pull through, and the sentiment overall is positive,” Rick Trotman, a senior research analyst at MLV & Co. in New York, said in a telephone interview. “The risk-on mentality seems to be back for now.”
Gold futures for delivery in April rose 0.8 percent to $1,696.50 an ounce at 9:30 a.m. on the Comex in New York. Prices advanced 0.7 percent yesterday.
Bullion assets in exchange-traded products expanded for a sixth straight session yesterday to a record 2,407.021 metric tons, now valued at about $131 billion, according to data compiled by Bloomberg.
The possibility of a third economic stimulus from the Federal Reserve is the key to determining gold’s next move, UBS AG said in an e-mailed report today.
Silver futures for May delivery increased 0.5 percent to $33.75 an ounce on the Comex. The commodity’s 20 percent gain this year through yesterday is the biggest among precious metals.
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International Business Times
In the last decade, the price of an ounce of gold has risen over 500 percent, making it one of the best investments in any market. The yellow metal has risen for a number of reasons, but the next main driver of gold prices has yet to fully be accounted for.
The decade-long rally in gold has been fueled by a drop in the U.S. dollar, a run to safety after Sept. 11, as well as a supply/demand issue. Another catalyst for the rise has been the future expectation that inflation will rise to above average levels. As I have argued in the last few weeks, inflation is already here, just not according to the government statistics.
History Points to Gold
During the 1970's, there were two distinct timeframes when inflation was a major issue and, each time, the price of gold rose. From late 1971 through 1974, the inflation rate in the U.S. went from 2 percent to nearly 10 percent. During that period the price of gold went from $40 to over $180 per ounce and the value of the S&P 500 fell by over 25 percent.
A few years later, inflation crept back into the market, this time reaching hyperinflation with rates in the double-digits. From 1977 through 1980, the price of gold surged from $130 to $675 per ounce. Similar to the early 1970's, the value of stocks lagged well behind that of the precious yellow metal.
Gold and the Greenback
The relationship between the price of gold and the U.S. dollar has been evident for many years. As the price of the greenback falls, gold will typically rise and vice versa. From day-to-day the two asset classes do not always follow this pattern, but over the long-term, the probability of the two moving in opposite directions is high.
This is important because the greenback has a lot to do with the coming high inflationary environment. As the U.S. continues to print money to combat what they feel is a slow economic situation, the value of the dollar will fall. At the same time, the money flooding into the system will be one of the triggers for inflation. Not only will the value of the U.S. currency fall, potentially hurting national defense, inflation will also become a major headwind to any economic recovery.
Protecting Your Money with Gold
If you are on the same page as me when it comes to inflation in the coming years, then you must be thinking about owning gold in some manner. For my clients, we started buying gold in 2006, when it was near $600 per ounce. Today, the metal sits near $1700; my opinion is that it could be in the mid-$2000s in the next year and even higher if the U.S. moves into hyperinflation mode in the next five years.
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Gold futures advanced Thursday, on track to tally a second day in the black amid investor hope that Greece is on the verge of closing the deal on its crucial debt swap.
Gold for April delivery added $13.10, or 0.8%, to $1,697 an ounce on the Comex division of the New York Mercantile Exchange.
Gold rose 0.7% on Wednesday, breaking a three-session losing streak.
Most metals tracked gold higher on growing optimism that Greece will complete its long-awaited debt swap with private bondholders.
A majority of the bondholders have indicated they will participate in the swap ahead of a deadline later Thursday, according to news reports.
“Risk is back on the table,” said Frank Lesh, broker and futures analyst with FuturePath Trading in Chicago. While a successful swap “does not fix everything,” it’s pushed markets higher for the time being, he said.
The hopes for some resolution in Greece’s debt restructuring also helped strengthen the euro, weighing on the ICE dollar index DXY -0.60% . The index, tracking the dollar against a basket of six currencies, fell to 79.312 from 79.692 late Wednesday.
A weaker greenback tends to support dollar-denominated commodities as it makes them cheaper to holders of other currencies.
Gold lately has behaved more like a classic commodity than a flight-to-safety instrument, said Adam Klopfenstein, strategist with Archer Financial in Chicago.
It would have to trade above $1,735 an ounce “before I view it as a solid uptrend,” he added.
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The Washington Free Beacon
Gallup calculates that unemployment rose by 0.5 percent during the month of February, the largest month-to-month increase since December 2010.
U.S. unemployment, as measured by Gallup without seasonal adjustment, increased to 9.1% in February from 8.6% in January and 8.5% in December.
The 0.5-percentage-point increase in February compared with January is the largest such month-to-month change Gallup has recorded in its not-seasonally adjusted measure since December 2010, when the rate rose 0.8 points to 9.6% from 8.8% in November. A year ago, Gallup recorded a February increase of 0.4 percentage points, to 10.3% from 9.9% in January 2011.
In addition to the 9.1% of U.S. workers who are unemployed, 10.0% are working part time but want full-time work. This percentage is similar to the 10.1% in January, but is higher than the 9.6% of February 2011.