Bloomberg News

Gold May Climb as Rallies in Corn, Oil Fan Inflation Concerns

June 09, 2011

June 9 (Bloomberg) -- Gold may advance for the first time in three days after grain and energy prices surged, boosting the precious metal’s appeal as a hedge against inflation.

Immediate-delivery bullion was little changed at $1,536.25 an ounce at 2:01 p.m. in Seoul, 2.6 percent below a record. The metal has gained 24 percent in the past year, reaching an all- time high of $1,577.57 on May 2. The August-delivery contract was also little changed at $1,537.30 in New York.

“You might see some support on the back of food inflation with corn and wheat, particularly corn” gaining, Jonathan Barratt, managing director at Commodity Broking Services Pty, said by phone from Sydney. “You might find people starting to reassess the food-inflation aspect.”

The Thomson Reuters/Jefferies CRB Index of 19 raw materials has advanced 38 percent in the past year, with corn more than doubling. The grain, used in food, animal feed and biofuels, surged by the most in three weeks yesterday. Global food costs are near the highest ever, according to the United Nations.

Crude oil rose, trading above $100 a barrel in New York, after the Organization of Petroleum Exporting Countries failed to reach an agreement on production targets for the first time in at least 20 years and U.S. crude inventories fell.

Brazil’s central bank raised its benchmark interest rate for a fourth straight meeting yesterday after consumer prices exceeded the upper limit of its target range for the first time since 2005. At least two dozen nations including China, India, Thailand, South Korea, Indonesia and the European Central Bank raised rates this year, data compiled by Bloomberg show.

ECB Meeting

The ECB meets today and is forecast to leave its benchmark rate at 1.25 percent, according to economists in a Bloomberg survey. The central bank may increase borrowing costs by 25 basis points in July, a separate survey showed.

“We expect more upside for gold and platinum-group metals,” Stefan Graber, an analyst at Credit Suisse Group AG, wrote in a report today. “Today’s ECB meeting and its impact on interest rate expectations will be followed closely.”

U.S. Federal Reserve Chairman Ben S. Bernanke has spurred growth by holding the main interest rate near zero since December 2008. Gold is up 8.1 percent this year after climbing the past 10 years, the longest run of gains in at least nine decades.

Bernanke this week signaled that there won’t be a third round of so-called quantitative easing. The Fed will end the second round of quantitative easing by buying back $600 billion in Treasuries by the end of the month.

Newcrest Mining Ltd., Australia’s largest gold company, cut its full-year output forecast for the third time this year after a power failure interrupted production at its Lihir Island mine in Papua New Guinea. The reduction is adding to “already tight global supplies,” Mark Pervan and Natalie Robertson, analysts at Australia & New Zealand Banking Group Ltd., wrote in a report.

Silver for immediate delivery fell 0.6 percent to $36.595 an ounce. The price has more than doubled in the past 12 months.

Cash palladium increased 0.3 percent to $807.75 an ounce, while immediate-delivery platinum fell 0.2 percent to $1,819.95 an ounce.

--With assistance from Matthew Bristow in Brasilia. Editor: Jake Lloyd-Smith

To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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