Gold hit a one-week high on Tuesday, gaining 1 percent on strong physical demand, and as Chinese inflation data boosted the metal's appeal as a hedge.
The metal's second consecutive daily gain was sparked by data showing China's annual consumer inflation accelerated more than expected in June.
Signs of tightness in gold forward market also boosted investor sentiment.
News that the 1-month and 3-month Gold Forward Offered Rates (GOFO), rates at which bullion banks are prepared to lend gold on a swap against U.S. dollars, fell for the first time in years underpinned gold prices.
"Clearly there is some dislocation in the physical market and maybe because demand has been surprisingly strong that has caused some temporary shortages," said Societe Generale analyst Robin Bhar, adding that there has been a lot of gold borrowing in the last 24 hours.
(Read More: China Remains Entrenched in Producer Price Deflation
MAKE SURE YOU GET PHYSICAL SILVER IN YOUR OWN POSSESSION. Don't Buy SLV, or Futures or Pooled Accounts or any other BS paper silver product .Remember anything on paper is worth the paper it is written on. Go Long Stay long the bull market have even started yet
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