Gold extends gains on China data and short-covering

Gold continued to advance on Tuesday, extending its rally from Monday, after China reported higher than expected annual consumer inflation. The precious metal was also supported as traders closed bets on lower prices known as covering a short position.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 255.75 per troy ounce at 8:07 GMT, up 1.69% on the day. Prices held in daily range of $1 258.65 and $1 232.05. The precious metal rose by 1.2% yesterday after tumbling more than 2% on Friday as the U.S. Labor department reported the countrys economy created more jobs than expected in June and revised upward Mays reading, reinforcing the consistent recovery sentiment. Gold has advanced around 2.7% this week after shedding more than 12% during the preceding three.

Chinas National Bureau of Statistics reported annual CPI rose to 2.7%, exceeding analysts expectations for a 2.5% reading and well above Mays 2.1%. This once again boosted golds appeal as a hedge versus inflationary risks, shooting the August contract up as much as 1.9%, the biggest intraday climb since July 1.

Steven Dooley, head of research at Forex Capital Trading Pty in Melbourne, said for Bloomberg: “Part of the move lower in gold was the thinking ‘perhaps we’ll never have to worry about inflation again. We saw a big burst of buying after the Chinese data today.”

Gold has lost 27% of its value this year, around 22% of which in the second quarter as investors stopped seeing the metal as a safe haven for wealth preservation. Assets in the SPDR Gold Trust, the largest bullion-backed ETP, fell 30% this year to 946.96 tons as of yesterday as monetary stimulus around the world failed to spur inflation.

The precious metal advanced more than 1% on Monday as the dollar index, which tracks the greenbacks performance against six major peers, retreated from a 3-year high amid controversial economic data from Europe. On Tuesday, the dollar index for settlement in September is marking a minor daily loss, down 0.01%. The U.S. currency gauge traded at 84.43 at 7:52 GMT, ranging between days high and low of 84.58 and 84.31

Last Friday, gold plunged more than 2% as the dollar index hit a three-year high after the U.S. Labor Department reported the economy created more jobs in June than expected and revised Mays reading upward, showing consistent signs of recovery. The Non-Farm Payrolls indicator surpassed surged to 195 000, surpassing expectations for a 165 000 reading and aligning to May’s revised reading. The Unemployment Rate for June in the world’s biggest economy failed to meet expectations of a decline to 7.5% but remained unchanged at 7.6% compared to May.

Average Weekly Hours met projections and remained the same compared to June at 34.5 hours, whereas Average Hourly Earnings surged to 0.4%, surpassing projections of a 0.2% gain and above May’s 0.1% revised reading.

Investors are now looking ahead into Wednesday’s minutes of Fed’s June meeting and Ben Bernanke’s statement, which are expected to provide further information about the central bank’s future monetary policy.

Elsewhere on the metals market, silver, platinum and palladium are all tracking golds upward direction. Silver for September delivery traded at $19.350 per ounce, up 1.67% on the day. Platinum October futures gained 0.86% for the day, standing at $1 373.70 per ounce at 8:06 GMT. Palladium for September delivery gained 1.30% and traded at $704.50 per ounce at 8:06 GMT, surging above the $700 mark.