Gold, Precious Metals Climb as Investors Seek to Store Value

Jan. 22 (Bloomberg) -- Gold rose, along with silver, platinum and palladium as investors sought a store of value amid tumbling New York and European equity markets.

The Standard & Poor’s 500 Index fell as much as 3.4 percent. Initial claims for unemployment benefits matched a 26-year high in the U.S. last week, while housing starts slumped to a record in December, raising concerns the recession is deepening. Some investors buy precious metals during turbulent times to protect value amid instability in equity and other markets.

“There is still some good fear buying, which could persist,” Stephen Platt, a commodity analyst at Archer Financial Services Inc., said in a telephone interview from Chicago. “Gold may retest the $1,040 area within a year.”

Gold futures for February delivery climbed $8.70, or 1 percent, to $858.80 an ounce on the New York Mercantile Exchange’s Comex division. Gold rose 5.5 percent last year, the eighth straight gain, as the S&P index fell 38 percent.

“U.S. equity indexes are down, and that is supportive for the gold price,” Bayram Dincer, Zurich-based commodity analyst at Dresdner Bank, said in an e-mailed note. “Still, gold is relatively weak and that is disappointing.”

A price below $800 an ounce is a “good entry level” in the gold market, Dincer said.

Gold has a mixed record as a long-term store of value against inflation and declines in other assets. On Jan. 21, 1980, the most-active contract touched $873 an ounce and closed at $834 in New York.

“Ask the investor who rushed out to buy gold precisely 29 years ago, at $845 an ounce,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal. “They could sell it for about $845 today as well. However, they would need to sell it for something near $2,200 just to break even, when adjusted for inflation.”

Commodity Index Falls

The UBS Bloomberg Constant Maturity Commodity Index fell for a third straight day, declining as much as 2.4 percent to 832.24, the lowest since Dec. 31.

The MSCI World Index of equities dropped as much as 1.9 percent and has declined 10 percent this month.

“The danger remains that stock-market price erosion could still engender margin-call related commodity liquidations among funds,” Nadler said. “Not even gold is immune from complete investment-liquidation scenarios such as the massive outflows from commodities seen in the July-November period last year.”

Among other metals, silver futures for March delivery rose 4 cents, or 0.4 percent, to $11.365 an ounce in New York.

Platinum

Platinum futures for April delivery rose $7.30, or 0.8 percent, to $934.90 an ounce. Platinum slid 5.2 percent last week and is down 60 percent from a record $2,308.80 on March 4.

“Platinum is going to hold its value,” Archer’s Platt said.

Palladium futures for March delivery rose 40 cents, or 0.2 percent, to $184.80 an ounce. The price fell 3.1 percent last week and has dropped 50 percent in the past year.

Builders began construction on homes at the slowest pace on record last month, as sales and mortgage financing dried up, the U.S. Commerce Department reported today. Housing starts fell to a 550,000 annual rate, the lowest since at least 1959, when record-keeping began.

First-time claims for unemployment insurance rose to 589,000 last week, matching a 26-year high reached last month, the U.S. Labor Department said. U.S. employers cut 2.6 million jobs last year, dimming prospects for a quick economic recovery.

Gold, which reached a record $1,033.90 an ounce in March 2008, may trade around $900 an ounce within a month and $850 in three months, according to John Reade, a UBS AG analyst in London. He previously forecast $800 in one to three months.