Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold gained 0.2% to close at a one-week high near $1,277 as a flat dollar, falling equities, rising oil, and higher inflation boosted demand for alternative stores of value

The Consumer Price Index gained 0.4% last month, its biggest rise in three years, driven by sharply higher gas prices and rents. The so-called core CPI, which removes food and energy costs, rose by a modest 0.2%. Real hourly wages, adjusted for inflation, fell 0.1% in April and have gained only 1.3% over the last year.

In other positive reports, factory output expanded by 0.3% in April, offering some hope for the beleaguered sector, and housing starts rose by more than expected as builders increased construction of single-family homes.

Oil jumped another 1% to a new seven-month high on expectation of lower stockpiles. Crude surged more than 3% yesterday after Goldman Sachs released research showing oil surpluses have given way to shortfalls for the first time in two years, in part because of recent production disruptions in Venezuela, Canada, and Nigeria. Gold often trades in sympathy with higher oil as a hedge against energy-inflation.

U.S. equities extended their losses, with the Dow dumping more than 220 points, or 1.25%, on concerns that higher inflation could spur the Fed to raise rates in June. Higher rates tend to weigh on stocks by increasing borrowing costs for companies, eating into growth and profits.

Joint comments by two Fed officials helped to stoke rate concerns as Dennis Lockhart of Atlanta and John Williams of San Francisco said a June hike remains on the table, depending on economic data, with two or three increases likely this year.

After initially rising on the upbeat data, the dollar quickly fell back to flat as traders speculated that the higher CPI will not be enough to prompt a rate hike by the Fed at their next meeting, in June.

The other precious metals were mixed, with silver and platinum adding 0.7% and 0.2%, respectively, while palladium dropped 0.9%.

At the Comex close: June gold gained $2.70 to $1,276.90; July Silver added 11 cents, to $17.27; July platinum picked up $2.40 to $1,055.90; and June palladium slid $5.25 to $585.75 an ounce.