Gold and Silver Rise as Hedge Against Inflation Expectations

Apr 6th, 2011 | By | Category: Business and Finance

Concerns about inflation sent gold prices to a record high for the second day in a row Wednesday. Meanwhile silver rose to a 31-year peak.

Some investors buy gold, silver, and other precious metals as a hedge against inflation. Demand for precious metals rose following Tuesday’s release of minutes from the Federal Reserve’s March 15 meeting, which revealed dissent on maintaining programs to stimulate growth. Federal Reserve Chairman Ben S. Bernanke, who has kept the Fed’s benchmark interest rate at a record low since December 2008, said this week that inflation must be watched “extremely closely.”

B120 gold bar Gold and Silver Rise as Hedge Against Inflation Expectations

Photo by PHGCOM

In the wake of these developments, gold rose as high as $1,463.70 an ounce. Gold futures for June delivery rose $6, equivalent to 0.4 percent, to reach $1,458.50 at 1:39 pm on the Comex in New York. Gold for immediate delivery in London climbed to a record of $1,462.30.

Meanwhile, silver futures for May delivery rose 20.4 cents, equivalent to 0.5 percent, to a level of $39.387 an ounce on the Comex. In the process prices peaked at $39.785, the highest price since January 1980, when silver rose to a record $50.35.

In other precious metals markets, platinum futures for July delivery jumped $1 to $1,797.80 an ounce on the Nymex; and palladium futures for June delivery dropped $8.50, or 1.1 percent, to settle at $784.60 an ounce on the New York Mercantile Exchange.

Precious metals are generally up over the past year. Gold has climbed 28 percent, while silver has doubled.

The rising demand for precious metals Wednesday was balanced by a drop in the value of currency. The dollar fell as much as 0.9 percent against the euro over speculation that the European Central Bank will increase its main interest rate by 25 basis points to 1.25 percent. Meanwhile, the Chinese central bank raised interest rates yesterday for the fourth time since last fall, reflecting Chinese consumer prices rising last month at the fastest rate in three years. Analysts view inflation in China as a boon for gold investors.

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