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Record Gold, Rising Food Costs May Mean Inflation: Chart of the Day

Record gold prices and rising agriculture costs may signal a “coming wave” of accelerating consumer-price inflation, according to brokerage GoldCore Ltd.

The CHART OF THE DAY shows gold, bought by some investors to hedge against inflation, climbing 20 percent this year to an all-time high, while the S&P GSCI Agriculture Index last month surged to a two-year high. Year-over-year gains in U.S. consumer prices excluding food and fuel remained steady at a 44-year low of 0.9 percent since April.

The Federal Reserve last month moved closer to a second wave of unconventional monetary easing, saying that too-low inflation and sluggish growth would warrant taking action. The headline U.S. consumer price index will average 1.5 percent in 2011, down from 1.6 percent this year, according to the median of 55 economists surveyed by Bloomberg last month.

“Burgeoning ‘agflation’ and record gold prices may signal a coming wave of inflation due to ultra-loose monetary policies” globally, said Mark O’Byrne, executive director of GoldCore in Dublin. The Fed “continues to be worried about low inflation, but the rising prices seen in agricultural commodities such as wheat would suggest that they may be looking in the rear-view mirror and should be more concerned about inflation, especially in the medium and long term.”

Bullion reached a record $1,320.70 an ounce on Oct. 1 as investors held about 2,095 metric tons across 10 exchange-traded products, more than the reserves of Switzerland and China, data compiled by Bloomberg and the World Gold Council show.

Agriculture prices have gained in part as Russia’s worst drought in at least five decades slashed local wheat production, prompting the country to ban grain exports. Sugar has climbed on speculation that adverse weather will damage crops in Brazil, the world’s largest producer of the sweetener.

(To save a copy of the chart, click here.)

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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