Gold climbs as rising grain prices spark inflation fears

NEW YORK • Gold futures locked in a gain Friday as some investors purchased the hard asset on concerns that rising grain prices would herald a period of higher inflation.

The most actively traded contract, for August delivery, ended up US$2.40, or 0.2%, at US$1,582.80 per troy ounce on the Comex division of the New York Mercantile Exchange.

Corn and soybean prices have touched record highs in recent weeks, while wheat prices are climbing fast as the drought over more than half of the U.S. intensified. The sustained heat and a lack of rain have made analysts reduce their forecasts for what was once expected to be a record large crop.

Gold prices are drawing some strength from higher grain prices, which are seen as “inflationary,” said RBC Capital Markets global futures vice-president George Gero.

Concerns about higher inflation have underpinned investor demand for gold in the past, as the yellow metal is widely considered a hedge against such risks and a store of value asset.

Gold has lost its mantle as a leading market, said Frank Lesh, a broker and futures analyst with FuturePath Trading. “Gold just follows other markets, it doesn’t lead anything,” he said, adding that investors are not flocking to gold because other commodity markets are presenting more profitable opportunities.

“We’ve got other areas that we’re looking to for profitable trades. Try corn, try soybeans, try wheat,” Mr. Lesh said. “You need investors to come back and I’m not sure what gets capital flowing back to gold at the moment,” he said.

Silver futures followed gold’s lead, climbing up US8.5¢, or 0.3%, to settle at US$27.302 a troy ounce for the September-delivery contract.

By contrast, platinum and palladium prices retreated. Both metals are widely used in car exhaust filters and other industrial applications, and ongoing concerns about that slower global growth would pressure demand continue to weigh on prices.

Nymex platinum fell 0.6% to US$1,414.50 a troy ounce while palladium settled down 1.5% at US$576.10 a troy ounce.