Gold ends flat; producer prices drop in February

By Frank Tang and Jan Harvey

NEW YORK/LONDON (BestGrowthStock) – Gold prices surrendered initial gains to end unchanged on Wednesday, as a flat dollar and larger-than-expected decline in U.S. producer prices kept bullion investors on the sidelines.

Earlier in the session, gold rose on follow-through buying and improved sentiment a day after the Federal Reserve pledged to keep interest rates low for an extended period.

The metal, used as a safe haven in times of economic uncertainties, has benefited from currency volatilities related to sovereign credit fears in Greece and major economies such as the United Kingdom and the United States.

“The euro has given up gains and failed to push above $1.38, which is crucial resistance for the market, so gold is falling back,” said VTB Capital analyst Andrey Kryuchenkov.

Spot gold was at $1,123.85 an ounce at 1:48 p.m. EDT (1748 GMT), against $1,124.70 late in New York on Tuesday. Bullion had traded as high as $1,132.80 an ounce earlier in the session.

U.S. April gold futures settled up $1.70 at $1,124.20 an ounce on the COMEX division of the NYMEX.

Earlier on Wednesday, a government report showed that U.S. producer prices fell more than expected in February as energy costs tumbled, supporting the Fed’s resolve to hold rates near zero.

The dollar was mostly flat against the euro, as the currency market took a breather after the report showed that core producer prices rose by 0.1 percent, in line with economists’ forecast.

The currency market has been particularly volatile of late because of news related to a possible rescue plan by the European Union for debt-laden Greece.

“Gold’s inverse relationship with the dollar is such a powerful (influence) that most moves in gold on a daily basis can be explained by currencies,” said Nick Moore, head of commodity strategy at RBS Global Banking & Markets.

Gold usually moves in the opposite direction to the dollar, as the unit’s strength curbs its appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

The Fed’s decision is likely to benefit gold in the longer term, analysts said, as low interest rates reduce the opportunity cost of holding gold, or the amount it costs investors to hold non-interest bearing bullion instead of other assets.

Among other commodities, oil rose sharply for a second session to $83 a barrel on economic optimism. The Dow Jones industrial average is on track to post gains for a seventh straight day on Wednesday. (O/R: ) (.N: )

PLATINUM HITS 2-MTH HIGH

Platinum meanwhile hit a two-month high at $1,641 an ounce and palladium rose on fears over power output in South Africa, which is the source of four-fifths of the world’s platinum and the second biggest palladium producer.

South African state-run utility Eskom said on Tuesday power supply is seen as a serious concern from 2011 onwards until new power stations come onstream.

The metals, mainly used in autocatalysts, have already risen strongly this year on expectations for rising car sales.

Platinum was at $1,634.50 an ounce versus $1,633.50, and palladium was at $478.50 versus $470.

Among other precious metals, silver was at $17.49 an ounce versus $17.40.

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(Reporting by Frank Tang and Jan Harvey; Editing by Lisa Shumaker)

Gold ends flat; producer prices drop in February