Gold Slides on Inflation Data; Palladium Gains

Los Angeles (June 17)  Gold prices closed lower Tuesday, as U.S. inflation data and its possible effect on the Federal Reserve's decision making overshadowed investors' desire for safety amid crises in Iraq and Ukraine.

Gold for August delivery, the most actively traded contract, fell $3.30, or 0.3%, to $1,272 a troy ounce on the Comex division of the New York Mercantile Exchange.

Consumer prices rose at the fastest pace in more than a year in May, extending a period of higher inflation that could weigh on Fed officials as they debate when to raise short-term interest rates, a move that would hit gold prices. The central bank will conclude its two-day meeting on Wednesday.

Gold prices had advanced in recent days, as spiraling violence in Iraq prompted some investors to seek ways of protecting their wealth against geopolitical instability. Prices for the metal were also given a boost Tuesday after an explosion ripped through a gas transit pipeline in central Ukraine, a day after Russia said it was cutting off supplies to its neighbor over a payment dispute. Some traders believe gold will hold its value in times of turmoil while other assets fall.

Many investors, however, believe the metal has few long-term prospects, as a steadying U.S. recovery reduces the need for the haven asset. Despite the recent rally, prices have fallen some 8% from March highs, as evidence mounts that several months of weak U.S. data were the result of an unusually cold winter, rather than an inherent flaw with the economic recovery.

"I was, and remain, very skeptical of this market," said Peter Hug, global trading director a Kitco Metals, in a note to clients. "Although the geopolitical issues with Iraq continue and some may argue are accelerating, the lack of follow-through [in the gold price] is very disconcerting for the bulls."

Palladium prices crept up 0.9% to $816.70 a troy ounce as investors awaited the resolution of a five-month-long miners' strike in South Africa. Mining companies and union officials tentatively agreed on a proposal to end the strike last week, although union members still need to accept the deal.

Source:  WSJ