Gold Heads for Longest Run of Quarterly Gains in 3 Decades on Libya, Debt

Gold is now heading for the longest streak of quarterly gains in 3 decades as a result of the increasing debt levels of global economies and the crisis that has been occurring in the Middle East region.

By Nicholas Larkin - Mar 31, 2011 9:20 AM MT
BLOOMBERG

Gold rose in New York, heading for the longest streak of quarterly gains in more than three decades, as fighting in Libya and concerns about European debt spurred demand for an alternative investment.

Troops loyal to Muammar Qaddafi forced Libyan rebels to retreat as the U.S. and U.K. said they would consider arming opposition forces. Gold futures reached a record $1,448.60 an ounce on March 24 as fighting in Libya, the Japanese nuclear crisis and concerns about European debt boosted demand for a protection of wealth.

“Given the unrest in the Middle East and North Africa region, increasing debt issues in the euro zone and the environment of historically low interest rates, gold and silver should continue to remain underpinned and test towards recent highs,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

Gold futures for June delivery rose $13.20, or 0.9 percent, to $1,438.10 an ounce at 11:52 a.m. on the Comex in New York. Prices are up 1.2 percent this quarter. A 10th quarterly increase would be the best run of gains since at least 1975. The metal for immediate delivery in London was 1 percent higher at $1,436.93.

Libyan Foreign Minister Moussa Koussa quit Qaddafi’s government as rebels were forced to abandon much of the territory they captured after the U.S.-led air campaign against Qaddafi’s army began almost two weeks ago. The fighting in Libya is the most violent seen in more than two months of popular uprisings across the Middle East and North Africa.

Portuguese Debt

Standard & Poor’s this week cut credit ratings for Greece and Portugal, and the cost of insuring Portuguese government debt reached a record according to CMA prices, as speculation mounted the nation will be forced to restructure its borrowings. Irish regulators instructed four banks to raise 24 billion euros ($34.1 billion) in additional capital following a stress test on the nation’s lenders.

Tokyo Electric Power Co. has been spraying water on the reactors at the Fukushima Dai-Ichi plant damaged after this month’s earthquake and tsunami in Japan. Work to repair the plant’s monitoring and cooling systems has been hampered by discoveries of hazardous radioactive water. The government hasn’t ruled out pouring concrete over the whole facility as one way to shut it down, Chief Cabinet Secretary Yukio Edano said.

Gold and silver are being supported by “inflation, geopolitical and euro zone debt concerns,” analysts at GoldCore Ltd. in Dublin said in a report.

Inflation Accelerates

European inflation unexpectedly accelerated to 2.6 percent in March, the fastest in more than two years, the European Union’s statistics office said today.

Gains were limited this quarter on signs the U.S. economy is improving, boosting investor appetite for higher-yielding assets like stocks. St. Louis Federal Reserve Bank President James Bullard yesterday said the central bank may need to begin pulling back from record levels of monetary accommodation even amid uncertainties in Japan and the Middle East.

Silver for May delivery in New York rose 0.4 percent to $37.675 an ounce. It reached $38.18 on March 24, the highest level since February 1980, the year futures reached a record $50.35. Prices are up 22 percent this year, heading for a ninth straight quarterly advance, the best run of gains since at least 1975.

An ounce of gold bought as little as 37.72 ounces of silver in London today, the lowest level since October 1983, data compiled by Bloomberg show. Silver is used more in industry than gold.

“Increasing global investment and industrial demand in the very small and finite silver bullion market is a recipe for higher prices,” GoldCore analysts said. With gold near a record, “silver is the cheap alternative to gold and an attractive store of value.”

Palladium for June delivery was up 0.9 percent at $764.60 an ounce, and is down 4.8 percent this quarter. Platinum for July delivery gained 0.5 percent to $1,782.40 an ounce. Prices are up 0.2 percent this quarter.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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