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The gold price slumped Wednesday morning, falling $4.10 to $1,206.60 per ounce. Over the past two weeks, the gold price has closed every day in the narrow band of $1,190 to $1,215. Traders and investors are looking for clues as to whether the price of gold is set to break out to the upside or downside. The flurry of price inflation data set to be released over the next couple of days could be the catalyst for a breakout in the gold price.
Tomorrow the Producer Price Index (PPI) will be released, followed by the Consumer Price Index (CPI) on Friday. These widely-followed measures of price inflation will be scrutinized for evidence that deflation is taking hold. Both indices are expected to show month-over-month price declines. The CPI is set to decline for the third consecutive month, a fact that has the potential to intensify deflation fears. The Consumer Price Index has not declined four consecutive months since the Great Depression era of the 1930s. Contrary to conventional wisdom, the gold price has remained in an uptrend while a number of strong deflationary headwinds have emerged over the past 18 months.
The gold price has been driven higher by potent investment demand, which is evident in both sales of physical gold and inflows into gold bullion ETFs. The SPDR Gold Trust (GLD) now holds 42.2 million ounces of gold, valued at over $51 billion using the current spot gold price. Gold has begun to re-emerge as a monetary alternative amidst the deteriorating balance sheets of most of the developed world.