Gold Climbs as Euro Advances on IMF Pledge, German Business Confidence

Gold is climbing again this Tuesday as the euro advances and gold continues to be an attractive investment to investors. Gold also gained after news came out that German business confidence rose unexpectedly for the second month.

By Maria Kolesnikova and Glenys Sim
Dec 20, 2011 5:54 AM MT
Bloomberg

Gold climbed, trimming the first quarterly decline since 2008, as the euro advanced after European finance ministers boosted their anti-crisis efforts by pledging extra funding to the International Monetary Fund.

Europe bolstered its anti-crisis arsenal, channeling 150 billion euros ($196 billion) to the IMF as the European Central Bank widened its support for bond markets. Bullion also gained after German business confidence unexpectedly rose for a second month in December, suggesting Europe’s largest economy is weathering the region’s debt crisis.

“Gold is gaining in line with risk-buying on the back of the IMF news,” said Nikos Kavalis, an analyst at Royal Bank of Scotland Group Plc in London. “There has been some recovery in physical buying but nothing to write home about yet.”

The February-delivery contract climbed 0.5 percent to $1,604.70 an ounce by 7:09 a.m. on the Comex in New York. Immediate-delivery bullion rose 0.6 percent $1,603.45 an ounce in London.

The euro rose against the U.S. dollar as much as 0.7 percent today. The 30-day correlation coefficient between gold and euro is now at 0.57, compared with -0.35 on Oct. 7, data compiled by Bloomberg show. A figure of -1 means the two move in opposite directions and 1 means they move in lockstep.

Bullion fell 6.9 percent last week as the dollar rallied against the euro. Futures tumbled to $1,562.50 on Dec. 15, the lowest price since Sept. 26, and 19 percent below the Sept. 6 record of $1,923.70. While it is 13 percent higher this year, the metal has lost 1.1 percent this quarter.

Dollar Driver

“Gold below $1,600 is very attractive to investors who still believe in the longer-term uptrend,” said Yang Shandan, senior trader at Cinda Futures Co., rated second in a Futures Daily and Securities Times poll of China gold analysts. “The dollar will remain a key driver of near-term prices.”

Holdings in bullion-backed exchange-traded funds, which reached an all-time high of 2,360.81 metric tons on Dec. 14, fell for a third day to 2,344.138 tons yesterday, data compiled by Bloomberg show.

Silver for March delivery gained 1.3 percent to $29.255 an ounce, taking its loss this year to 5.4 percent.

Platinum for January delivery advanced 0.6 percent to $1,421.70 an ounce and is down 20 percent this year. Palladium for March delivery was down 0.1 percent at $617 an ounce. Prices dropped 23 percent in 2011.

To contact the reporters on this story: Maria Kolesnikova in London at mkolesnikova@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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