Gold Rises as Economic Outlook Boosts Demand for Inflation Hedge

Gold rebounded from a three-week low on speculation that an improving global economy will spur inflation, boosting demand for the precious metal as a hedge.

The MSCI All-Country World Index and the Standard & Poor’s 500 Index gained today after reports showed Chinese industrial output and U.S. retail sales topped economists’ estimates. Before today, gold slumped 2 percent in the past week, dropping yesterday to $1,511.40 an ounce, the lowest since May 23.

“Gold is embracing the inflationary discussion,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “The huge rally in the S&P gave gold the risk-on attitude that it so dearly needed. Gold is acting more as a reflection of the growth element in the economy.”

Gold futures for August delivery rose $8.80, or 0.6 percent, to settle at $1,524.40 at 1:55 p.m. on the Comex in New York. The metal has advanced 7.2 percent this year, reaching a record $1,577.40 on May 2.

The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and pledged to buy back $600 billion in U.S. Treasuries by the end of June to revive the economy.

“The worry in metals seems to be centered on the health of the global economy,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago.

Silver futures for July delivery rose 67.4 cents, or 1.9 percent, to $35.411 an ounce on the Comex. The price has gained 14 percent this year.

Palladium futures for September delivery dropped $7.60, or 0.9 percent, to $792.75 an ounce on the New York Mercantile Exchange.

Platinum futures for July delivery fell $11.90, or 0.7 percent, to $1,794.90 an ounce on the Nymex.

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