The ECB Has Set Its Sights On Boosting Inflation

NEW YORK (MarketWatch) -- Gold futures rose Thursday for a fourth straight session, climbing above $920 an ounce after the European Central Bank cut its benchmark interest rate to a record low of 1%, raising worries about global inflation.

The ECB also said it may offer banks longer-term loans to stem the region's economic recession. Meanwhile, The Bank of England surprisingly increased a bond-purchasing program.

Gold for June delivery gained $12.10, or 1.3%, to $923.10 an ounce in early morning trading on the Comex division of the New York Mercantile Exchange. It has gained nearly 4% this week.

Having cut their key rates to close to zero, the Bank of England, U.S. Federal Reserve and Bank of Japan are now buying bonds, essentially printing money to reflate their economies in a policy known as quantitative easing.
"It is clear now that the ECB has set its sights on boosting inflation," said Brian Kelly, chief executive officer of Kanundrum Research, a commodities and macroeconomic research firm.

"The worry in the market is that central bank tools are notoriously blunt instruments," he added. "The central banks are trying to write book with can of spray paint. Investors are flocking to the soundness of gold in anticipation of a messy manuscript."

Gold is seen as the ultimate protection against inflation and a better store of wealth than paper money.

Gold's gain came after the Labor Department reported first-time claims for state unemployment benefits fell to the lowest level since late January, in a sign that a peak may have been passed.

The number of initial claims in the week ending May 2 fell 34,000 to 601,000. The four-week average of these initial claims fell 14,750 to 623,500, the Labor Department said.

In currency trading, the U.S. dollar fell against most of its major rivals, as upbeat economic data boosted market confidence and encouraged investors to buy high-yield, riskier currencies.
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