Inflation fears lift precious metals to records

Gold and silver both hit fresh highs on Wednesday, leading a broad surge for metals prices on fears that rising inflation will drive many central banks to lift interest rates in the coming months.

China raised its key lending rate by 25 basis points to 6.31 per cent on Tuesday, its fourth such move since October. Meanwhile, a quarter-point rate increase by the European Central Bank is now fully priced in as the euro rose 0.6 per cent to a 15-month high of $1.43.

Dollar gains helped push gold to a new high of $1,460 a troy ounce, up 0.6 per cent on the day, while silver gained 0.6 per cent to $39.44 an ounce, also a new high.

“Inflationary fears are fuelling strength in precious metals,” said Kathleen Brooks at Forex.com. “As oil takes another leap higher, gold and silver follow, and there is little standing in its way between where it is now and $1,500 per ounce.”

Precious metals have also gained from investors seeking havens from recent market turbulence caused by conflict in Libya and unrest in other parts of north Africa and the Middle East. Meanwhile, the nuclear contamination in Japan and eurozone debt crisis have also caused some market ructions.

Inflationary concerns, however, have been the prime mover of the precious metals, including platinum and palladium. Even in the US, some members of the Federal Reserve’s rate-setting committee have been raising the prospect of policy tightening by discussing an end to quantitative easing.

Food and energy prices have been the prime feeders of inflation and expectations of further price increases to come have kept central bankers in thrall, in spite of only a fledgling return to growth in many big economies.

Where growth prospects do appear to be assured, in China and many other emerging economies, there has been strong demand for commodities, including base metals. On Wednesday copper was up 1.6 per cent to $9,520 a tonne, while nickel gained 2.1 per cent to $26,000 a tonne.