Gold gained more than 1/2% on Monday after disappointing and confusing US jobs data revived hopes for further monetary easing, while appetite for the metal was also boosted as China inflation spiked. China’s inflation edged up in March as the government shifted focus from containing politically dangerous price rises to stimulating its slowing economy.
The government said on Monday that consumer prices rose 3.6 per cent over a year earlier, up from February’s 3.2 per cent. That was driven by a 7.5 per cent rise in food costs, up from the previous month’s 6.2 per cent. The shiny metals appeal as a hedge against inflation was tarnished as US employers hired far fewer workers in March than in previous months, keeping the door open for the Federal Reserve to provide more monetary support for a still sluggish economy.
The surprising reading on China’s annual inflation in March also supported sentiment in gold, as investors dismissed the possibility that the data would dissuade the government from its pro-growth monetary policy. If we see more reserve requirement ratios cuts, it will be positive for gold as it will raise inflation outlook down the road.
Climbing inflation in China contributed to the explosive gold demand from investors in 2011. China’s physical gold demand jumped 20 per cent last year, compared to a 7-per cent rise in global demand, according to the World Gold Council.
Gold rose as much as 1%in early hours to $1,648 an ounce, before dipping to $1,639.80. Gold dropped more than 2 per cent last week after US FOMC minutes showed waning interest in further quantitative easing. Investors once again are back to the fantasy world of the Fed and QE III.
Despite the disappointing payrolls data, analysts said a generally improving US economy and a dragging eurozone debt crisis could lead to further dollar strength, which in the short term may weigh on commodities priced in the greenback, including gold.
Data from the US Commodity Futures Trading Commission echoed the sentiment. Speculators cut their bullish bets on gold futures and options in the week ended April 3.
Jewellers in India called off their three-week-old strike on Saturday, an industry official said, on assurances from the Finance Minister that the government would consider scrapping a budget proposal to levy excise duty on unbranded jewelry.
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