Gold Climbs as European Crisis Spurs Demand

Gold advanced on Europe's continued debt crisis and on concern that they might not be able to contain the crisis. Investors flock to the metal in order to protect their assets and wealth in case of a potential slowdown in the overall global economy.

By Glenys Sim
Oct 2, 2011 11:53 PM MT
Bloomberg

Gold advanced for a third day on concern that Europe’s sovereign-debt crisis may not be contained, spurring investors to buy the metal to guard their wealth against a potential slowdown in the global economy.

Immediate-delivery gold climbed as much as 1.4 percent to $1,647.35 an ounce, and traded at $1,646.98 at 2:50 p.m. in Singapore. The precious metal, which reached an all-time high of $1,921.15 on Sept. 6, climbed 8.2 percent in the three months to Sept. 30 for a 12th quarterly advance. December-delivery bullion gained as much as 1.7 percent to $1,650 an ounce in New York.

European finance chiefs meet in Luxembourg today to discuss how to protect banks from the fallout of a potential Greek default even as the country approved further austerity measures needed to secure an aid payment and second rescue package.

“Investors who may not have the patience to wait for a political solution to the debt crisis from policy makers may seek out gold as a portfolio diversifier,” James Steel, an analyst at HSBC Securities USA Inc., wrote in a note. “As long as there is a mismatch between faster-moving, sovereign-debt- related events in the European Union and the political response to those developments, gold is likely to be the beneficiary.”

Holdings in gold-backed exchange-traded products rose for the first day in seven on Sept. 30 to 2,213.594 metric tons, according to data compiled by Bloomberg. Assets reached a record 2,299.823 tons on Aug. 8, Bloomberg data show.

Global Recession

“Elevated risk of a developed-markets recession has us continuing to prefer gold,” Morgan Stanley analysts including Hussein Allidina wrote in a report. The market is likely to price in the risk of a global recession until there’s a resolution to the European sovereign debt crisis, they wrote.

Hedge funds and other money managers trimmed their net-long gold positions by 15 percent to 127,801 contracts in the week to Sept. 27, data from the U.S. Commodity Futures Trading Commission showed. Total open interest in Comex futures fell to a 13-month low of 445,479 contracts on Sept. 29.

Gold is still in the 11th year of a bull market as investors diversify away from declining equities and commodities, and central banks expand reserves. Thailand, Bolivia and Tajikistan boosted holdings by a combined 18.2 tons in August, valued at $1 billion at the month’s average price.

Cash silver climbed as much as 3.2 percent to $30.8725 an ounce, and December-delivery futures advanced as much as 2.7 percent to $30.89 an ounce. Spot platinum fell as much as 1.2 percent to $1,507 an ounce, while palladium shed as much as 1.6 percent to $602.25 an ounce, the lowest level since October 2010.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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