Gold May Advance in London on Investors’ Demand for a Haven

Feb. 16 (Bloomberg) -- Gold, little changed today in London, may advance as investors buy the metal to diversify portfolios and preserve their wealth as the global economy sags.

The Group of Seven’s finance ministers said after talks in Rome yesterday that a “severe” economic downturn will persist for most of 2009. Japan’s economy shrank at an annual 12.7 percent pace last quarter, the most since 1974.

Bullion for immediate delivery added $2.20, or 0.2 percent, to $943.90 an ounce at 5:25 p.m. local time. April futures climbed $2.20 to $944.40 in electronic trading on the Comex division of the New York Mercantile Exchange. The U.S. market is closed today for a holiday.

“Gold’s ability to close last week above $930 was encouraging,” James Moore, an analyst at TheBullionDesk.com, wrote today in a note. “We expect gold to see further inflows” following “renewed banking and economic jitters.”

The metal declined to $942.50 in the afternoon “fixing” in London, used by some mining companies to sell production, from $943 at the morning fixing. Bullion gained 3.3 percent last week and is up 7 percent this year.

Gold may gain for a second straight week as the banking crisis and recession deepen, according to 26 of 32 traders, investors and analysts surveyed from Tokyo to Chicago last week. Five respondents advised selling and one was neutral.

U.K. Contraction

The U.K. economy will shrink 3.3 percent this year, almost twice the pace previously forecast, as the country heads into the worst recession in almost 30 years, the nation’s biggest business lobby said today.

Assets in three of the industry’s largest exchange-traded funds are at all-time highs. ETF Securities Ltd.’s Physical Gold fund rose to 2.299 million ounces on Feb. 13. The SPDR Gold Trust, the biggest ETF backed by the metal, expanded to 985.86 metric tons as of Feb. 13, while Zuercher Kantonalbank’s fund has record assets of 3.734 million ounces.

Gold reached a six-month high of $952.92 in London on Feb. 12.

The metal may remain in a “consolidation phase” today because of the U.S. holiday and after last week’s gains, London- based broker Marex Financial Ltd. said in a report.

“Economic stimulus plans by governments around the world are likely to drive inflation, increasing demand for gold as a hedge,” Marex said. “Governments may continue spending until they see inflation.”

Package Approved

U.S. Congress has given final approval to a $787 billion economic stimulus package and Treasury Secretary Timothy Geithner last week pledged as much as $2 trillion in financing for programs aimed at spurring new lending.

Hedge-fund managers and other large speculators increased their net-long position by 5 percent in New York gold futures in the week ended Feb. 10, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 163,622 contracts on the Comex.

Bullion has climbed 31 percent since October as governments are lowering interest rates and spending trillions of dollars to combat the recession.

“One of the critical factors about gold is that it’s not issued by a central bank,” Charles Kernot, a mining analyst at Evolution Securities in London, said in a Bloomberg Television interview. As governments devalue their currencies, “you want to have a completely independent hedge against that happening and gold really is such an independent hedge. There is still plenty of scope for a further uplift in the metal’s price.”

Among other metals for immediate delivery in London, silver slipped 0.7 percent to $13.59 an ounce. Platinum rose $2.25 to $1,066.50 an ounce, and palladium was 0.6 percent lower at $215.25 an ounce.