Gold powers above $1,500 as inflation worries mount

Posted: April 20, 2011 in Economic Crisis, US News

Frank Tang
April 20, 2011

(Reuters) – Gold rallied above $1,500 an ounce for the first time on Wednesday, extending this week’s record run as investors hedged growing inflation risks and bought into a broad commodities rally as the dollar slumped.

Mounting evidence of quickening inflation in major Asian economies such as China and India were echoed in Latin America on Wednesday, with Brazilian prices nearing a government ceiling and Mexico’s yearly rate exceeding a key target.

The break-even rates on U.S. Treasury Inflation-Protected Securities (TIPS), which measures investors’ inflation expectations, rose for a second day.

A second day of deep losses for the dollar and rallies in oil and grain markets that fueled further inflation concerns also buoyed bullion, which once again rose in tandem with riskier assets like equities as investors turned to gold as a store of value.

“The U.S. government at this point of time has not corrected its fiscal imbalance, and the Federal Reserve continues to maintain exceedingly loose monetary policy, which has the risk of further debasing the dollar,” said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott, which manages $53 billion in client assets.

Gold prices tend to rise with a declining dollar.

Spot gold rose to an all-time high of $1,505.70 an ounce. It was last up 0.4 percent at $1,500.50 by 3:31 p.m. EDT, having risen almost 4 percent over the past eight days. The metal is set for its 11th successive quarterly gain.

While well below their inflation adjusted highs of more than $2,200 struck in 1980 — when bullion prices spiked in response to the Soviet invasion of Afghanistan — gold has doubled since the lows of 2008 and risen six-fold since 2001.

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