Gold Prices Rise on Demand for Haven Asset; Silver Advances

Feb. 18 (Bloomberg) -- Gold rose for a second straight day on speculation the recession will deepen, boosting the appeal of the precious metal as a haven asset. Silver also gained.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, rose to a record 1,008.8 metric tons yesterday. Gold has gained 11 percent this year while the Reuters/Jefferies CRB Index of 19 commodities is down 12 percent and the Standard & Poor’s 500 Index has dropped 13 percent.

“Investor confidence is extremely shaky,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “People are still flocking to gold for its perceived safety.”

Gold futures for April delivery climbed $10.70, or 1.1 percent, to $978.20 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price reached $980.20, the highest since July 16. Gold gained 5.5 percent last year.

Silver futures for March delivery rose 28 cents, or 2 percent, to $14.29 an ounce. The metal has gained 27 percent this year after dropping 24 percent in 2008.

Gold demand surged 26 percent to 1,036.5 metric tons in the fourth quarter as the financial crisis spread, the World Gold Council said today in a quarterly report.

President Barack Obama outlined a $75 billion plan to help as many as 5 million U.S. homeowners refinance mortgage loans. Yesterday, Obama signed a $787 billion U.S. stimulus bill, increasing the government’s commitments to $9.7 trillion to ease the recession and the banking crisis.

Gold Outlook

Gold may rise above last year’s record of $1,033.90 on concern that government spending may spark inflation, said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago.

“Inflation fears emanate from the stimulus package and other spending plans and promises made in the past few weeks,” Pawlicki said. “In the first four weeks of the Obama administration, rhetoric seems to be full of uncertainty and promises of more money if needed. Both are bullish for gold.”

The SPDR Gold Trust is now the seventh-largest holder of gold, after the International Monetary Fund and the governments of the U.S., Germany, France, Italy and Switzerland.

Still, gold’s gains were limited today after a rally to the highest price since July. The price earlier dropped to $961.60. The seven-day relative strength index for futures topped 70 yesterday, a signal that prices may fall in the near term, according to analysts.

“We won’t see any dramatic sell-offs,” Zeman of LaSalle said. “The $1,000 level is having a very magnetic effect. We’ll see more buying come back in on the pullbacks.”