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Gold Gains As Stocks Dip On Inflation

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Gold Gains As Stocks Dip On Inflation
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Gold prices are seeing modest buying action this morning, after trending near unchanged in Europe. Spot gold is up $5 in New York, to retest resistance at the $1,280 mark. Gold prices flirted with that level in Asian trading overnight.

A spike in consumer prices and housing starts has Wall St. running scared this morning. In another scene of "good news is bad news," stock traders are now afraid the Fed will see enough progress in inflation to warrant an interest rate hike in June or July. Tomorrow's release of the April FOMC minutes will be a major market mover.

Yesterday's trading saw June gold futures settle at $1,274.20 an ounce, a gain of $1.50. After a $20 swing in prices, spot gold closed at $1,274.00, for a loss of $1.20.

Technical numbers today find gold pushing against resistance at $1,280. If this is successfully breached, 1,287 is the next line in the sand. $1,270 is first support, followed by $1,263.

Stocks closed higher on Monday, helped by a rebound in Apple after it was revealed that Berkshire Hathaway had taken a $1 billion stake in the company. In the wider markets, energy stocks were boosted on a sharp rally in Nymex crude. West Texas Intermediate oil futures gained 3.3% for the day.

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Oil is consolidating at six-month highs this morning, as it digests conflicting forecasts on global production. In Canada, the Fort McMurry wildfire is still not contained. Worse yet, wind shifts have sent the blaze back towards the town, and is endangering two large oil sands operations.

On the other hand, there are rumors that the two rival factions in Libya have come to an agreement that will see oil exports resume from the blockaded port of Hariga.

The jump in oil, then stocks, hit precious metals. At the same time stocks suddenly turn upward, gold prices fell by $4 in two minutes, starting at 10:30 Eastern Time.

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The biggest one-month jump in consumer prices in three years has stock traders fretting over the odds of a hike in benchmark interest rates by the Fed as early as next month. The CPI for April increased by 0.4%, after gaining just 0.1% in March. It posted a year over year rise of 1.1%, after gaining 0.9% in March. A lot of the increase in overall CPI was fueled by higher gasoline prices, which gained 8.1%. Core CPI, which measures underlying inflation minus volatile food and energy costs, rose 0.2% after a 0.1% rise in March.

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Another big bank has jumped on the gold bandwagon. German bank Joh. Berenberg Gossler & Co. announced that it is increasing its gold holdings as a hedge against a Brexit vote and a Trump presidency. Chief Investment Officer Manfred Schlumberger expects precious metals prices to increase by 40% in the next two years. He noted that 10 yr German and US bonds have no yield, so have lost their role as a safe haven investment.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product

About the Author

Everett Millman

Steven Cochran

Precious Metals Market Analyst
BS University of South Florida (2002)

A published writer, Steven's coverage of precious metals goes beyond the daily news to explain how ancillary factors affect the market.

Steven specializes in market analysis with an emphasis on stocks, corporate bonds, and government debt. He writes a monthly review of the precious metals markets for SurvivalBlog.com.

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