Gold Advances in Asia on Inflation Concerns After Fed Statement

By Dave McCombs

Gold gained for the first time in five days as some investors judged yesterday's decline to a one- month low had gone too far given prospects that inflation will accelerate, boosting demand for the metal as a haven.

The Federal Reserve as of March 19 lent $28.8 billion to the biggest U.S. securities firms to try to stabilize capital markets, in its first extension of credit to non-banks since the Great Depression. Pumping more money into the banking system may fuel inflation and demand for precious metals and other commodities.

Fundamentally, the charge forward is still there, Peter McGuire, managing director at Commodity Warrants Australia, said today in a Bloomberg Television interview. The time to buy is on the dips.

Gold for immediate delivery gained $9.71, or 1.1 percent, to $920.24 an ounce as of 4:26 p.m. in Tokyo. Silver for immediate delivery gained 0.7 percent to $16.90 an ounce.

A weakening U.S. currency has also benefited gold. The dollar has lost 16 percent against the euro in the past year as the Fed lowered its target rate to 2.25 percent. The central bank is cutting rates and pumping money into the banking system to prevent the worst housing slump in a quarter of a century and widening losses in credit markets from tipping the economy into a recession.

The steps have also prompted concern U.S. inflation may accelerate. Excluding food and energy costs, consumer prices rose 2.3 percent in February.

Given the scale of gold's rally in recent years and the pace of inflation, the precious metal should be at $2,500 an ounce, on an inflation-adjusted basis, McGuire of Commodity Warrants Australia said today. We think it's got a long way to go.

Gold for February delivery on the Tokyo Commodity Exchange fell by the 150 yen daily limit, or 4.7 percent, to 3,017 yen a gram ($944 an ounce) as of 4:39 p.m. in Tokyo. Japan's financial markets were closed yesterday for a national holiday.

Gold futures for April delivery fell 2.7 percent to $920 an ounce on the Comex division of the New York Mercantile Exchange yesterday. The price fell 8 percent this week, the biggest weekly drop for a most-active contract since August 1990. Bullion was not traded on Comex today because the market is closed for a holiday.

Platinum futures on the Tokyo Commodity Exchange also fell by the daily limit today.
Platinum for February 2009 delivery dropped the maximum 300 yen, or 5 percent, to 5,745 yen a gram ($1,794 an ounce) as of 4:21 p.m. in Tokyo. The most-active contract has plunged 23 percent from the record 7,427 yen a gram set March 6.

The metal for immediate delivery traded unchanged at $1,855 an ounce. Platinum for immediate delivery reached a record 2,301.50 an ounce on March 4.