Gold Gains in New York as European Debt Concern Spurs Demand

Gold gained as concern about Europe's debt problems grew and many investors are looking for an investment to protect their wealth. Yesterday, Standard and Poor's cut Italy's credit rating, adding to the euro zone problems.

By Nicholas Larkin and Glenys Sim
September 20, 2011, 8:39 AM EDT
Business Week

Sept. 20 (Bloomberg) -- Gold gained in New York as concern about Europe’s debt woes spurred demand for the metal as a protection of wealth.

Standard & Poor’s cut Italy’s credit rating yesterday, adding to concern Europe’s debt crisis will raise borrowing costs for countries in the region. Gold futures, which dropped 2 percent yesterday as the dollar strengthened against six major currencies, reached a record $1,923.70 an ounce Sept. 6.

“Continued concerns over euro-zone sovereign debt are likely to drive gold higher before policy makers are forced to take more effective action,” Bjarne Schieldrop, Oslo-based chief commodity analyst at SEB AB, wrote today in a report. “Under current circumstances, a long position in gold is highly recommended.”

Gold for December delivery gained $16.80, or 0.9 percent, to $1,795.70 an ounce by 7:59 a.m. on the Comex in New York. Immediate-delivery gold was up 0.8 percent at $1,792.75 in London.

Bullion is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. The metal is up 26 percent this year, outperforming global stocks, commodities and Treasuries.

Italy follows Spain, Ireland, Portugal, Cyprus and Greece as euro-region countries having their credit ratings cut this year. The European Central Bank last month started buying Italian and Spanish government bonds after the region’s debt crisis pushed their yields to euro-era records.

Greek Call

Greek Prime Minister George Papandreou’s government will hold another call with European Union and International Monetary Fund officials tonight in a bid to secure a sixth installment of rescue funds, amid concern austerity measures demanded are deepening a three-year recession and making it harder for the government to meet its deficit goals.

“There is scope for gold to rally as Europe’s problems cannot be settled overnight and Italy’s rating downgrade is an example of this,” said Zhang Qian, an analyst at Haitong Futures Co., China’s largest brokerage by registered capital.

Federal Reserve officials begin a two-day meeting today and may decide to replace some of the short-term Treasuries in the Fed’s $1.65 trillion portfolio with longer-maturity debt in a bid to lower borrowing costs, according to economists at Wells Fargo & Co., Barclays Plc and Goldman Sachs Group Inc.

Gold exchange-traded-product holdings were little changed at 2,199.5 metric tons yesterday, data compiled by Bloomberg show. Assets reached a record 2,260.5 tons on Aug. 8.

Silver for December delivery gained 0.9 percent to $39.51 an ounce. Platinum for October delivery was up 0.6 percent at $1,782.30 an ounce after earlier today falling to $1,766.50, the lowest price since Aug. 11. Palladium for December delivery rose 1.2 percent to $721 an ounce.

--Editor: John Deane

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

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

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