Gold Rises for Second Day as Oil Rally Spurs Inflation Concerns

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Gold futures rose for the second straight day as higher energy costs added to speculation that U.S. inflation will start to pick up, reviving demand for the precious metal as a store of value.

Crude oil in New York rose above $60 a barrel for the first time since December. In April, the price soared 25 percent, the most since May 2009, on signs the U.S. supply glut is easing. Investors who in December were unloading gold and bracing for deflation are now stepping up bets that inflation is returning. The dollar’s rally has stalled, and American wages are rising.

Holdings in exchange-traded funds backed by gold are rebounding, and speculators are getting more bullish. The metal has gained 4.5 percent from this year’s low in March as investors weigh expectations for higher consumer costs against signs that the Federal Reserve is getting closer to raising interest rates.

“Inflation expectations have been picking up, and gold is moving along with higher oil prices,” Edward Dempsey, the chief investment officer at Pension Partners LLC in New York, said in a telephone interview. “Higher oil and gold prices, dovetailed with higher yields, are confirmation that the market sees inflation rising.”

Gold futures for June delivery rose 0.5 percent to settle at $1,193.20 an ounce at 1:53 p.m. on the Comex in New York. On Monday, the price climbed 1 percent, the most in a week.

Inflation Expectations

A index of inflation expectations that closely tracks gold is trading close to the highest since September. The gauge is increasing amid declines for U.S. jobless claims and gains for manufacturing, according to Mike Pond, the head of global inflation market strategy at Barclays Plc in New York.

Traders “will remain focused on every piece” of economic data to assess whether the economy is strong enough for the Fed to start tightening, Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview.

Higher rates drive investors to favor assets that pay interest, including new bonds, curbing the appeal of gold, which generally offers returns only through price gains.

Employers in the U.S. probably added 230,000 workers last month, up from 126,000 in March, according to the median estimate in a Bloomberg survey of economists before the Labor Department report on May 8.

Assets in gold ETPs fell 0.5 metric ton to 1,626.8 tons on Monday. The holdings on Friday reached the highest since March 19.

‘Physical Demand’

“Below $1,180, there is good physical demand, especially from Asia,” Bernard Sin, the head of currency and metal trading at MKS (Switzerland) SA, a Geneva-based refiner, said in a telephone interview. ETP demand was “a good sign, because it creates some confidence that investors are coming back to gold again,” he said.

Silver futures for July delivery gained 0.8 percent to $16.579 an ounce on the Comex.

Palladium futures for June delivery rose 1.6 percent to $794.95 an ounce on the New York Mercantile Exchange. Earlier, the price reached $798, the highest for a most-active contract since March 13.

Platinum futures for July delivery fell 0.2 percent to $1,148.80 an ounce.

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