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Gold drops after Chinese interest rate hike
Written by article default Tuesday, 05 April 2011 15:21
Gold fell after news telling that the Chinese central bank had raised lending and deposit rates by 25 basis points which lowered the appeal of the shiny metal as an inflation hedge.
The precious metal, in fact, benefited from the rapid rise in oil prices to 30-month high on the unrest in Middle East and North Africa which pushed inflation rates above targets of many central banks.
However, meanwhile, there is tendency from many central banks to raise interest rate to stop price acceleration before it derails growth prospects. Yesterday, the Fed's comments provided some clues that may raise interest rate to stop inflation, while their earlier comments referred to the likelihood of cutting the second-round stimulus which would lower the abundant dollars in markets, thereby giving another cue to gold as an alternative investment.
In addition, the ECB is also expected to raise interest rate on Thursday after the acceleration in prices to 2.6%, according to the CPI flash estimate for the month of March, and the BoE may also surprise markets to halt inflation that rallied to 4.4%.
On the other hand, the latest improvement in US data is predicted to give some support to the dollar which may affect gold that reached a new record high last month, taking advantage of the dollar's weakness.
The dollar index, which tracks the dollar movements versus a basket of major currencies, rose to a high of 76.14 compared with the day's opening level of 75.88, ahead of the release of US ISM non-manufacturing report and Federal Open Committee minutes.
Gold is currently trading at $1431.58 an ounce after recording a high of $1438.95 and a low of $1429.84, while oil inched to $108.18 a barrel from the day's starting level of $108.28.