Gold Rises Most in a Week on Inflation Concerns; Silver Gains

Feb. 10 (Bloomberg) -- Gold rose the most in a week on concern that U.S. government plans to revive credit markets and ease the recession will stoke inflation, boosting the appeal of the metal as a hedge. Silver also gained.

The government may spend as much as $1 trillion to rescue banks, Treasury Secretary Timothy Geithner said in a speech today in Washington. The Senate passed an $838 billion stimulus bill, moving it toward final congressional action. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, reached a record 881.9 metric tons yesterday.

“There’s a lot of investor anxiety out there and people are turning to gold for its perceived safety,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “With all the money the government is planning to spend or print, at some point in the future, we’re going to hit the inflationary wall.”

Gold futures for April delivery rose $21.40, or 2.4 percent, to $914.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain for a most-active contract since Jan. 30.

Gold for immediate delivery in London rose $22.21, or 2.5 percent, to $916.76 an ounce at 3:37 p.m. New York time.

Silver futures for March delivery rose 30 cents, or 2.3 percent, to $13.13 an ounce on Comex. The price has gained 16 percent this year, while gold is up 3.4 percent.

“We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it,” Geithner said in the speech about a separate lending plan to be set up with the Federal Reserve and the Federal Deposit Insurance Corp.

New Financing Plan

“This program should ultimately provide up to $1 trillion in financing capacity, but we plan to start it on a scale of $500 billion, and expand it based on what works,” Geithner said in a prepared text for the speech.

Should a stimulus plan valued at about $800 billion become law, the U.S. will have committed $9.7 trillion to solving the financial crisis.

“Clearly, as far as those who would like investors to load up on precious metals are concerned, the program has but one outcome: inflation; coming soon, and coming in spades.” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal. Falling asset prices may limit gold’s gains, Nadler said.

Since the second quarter of 2007, banks worldwide have posted more than $1 trillion in credit losses and writedowns related to the financial crisis. Gold reached a record $1,033.90 an ounce on March 17. Speculators have placed bets that gold may top $1,000 by April, open interest in Comex options indicates.

Still, gold may face resistance around $925 to $930 as the highest prices since October attract sellers, said Dennis Gartman, an economist and the editor of the Gartman Letter in Suffolk, Virginia. Gold reached $931.30 on Jan. 30, the highest since Oct. 10.

Public Is Selling

“The gold futures speculators may be buying gold but the public is selling gold, perhaps to meet living expenses or simply because gold has gotten rather expensive,” Gartman said. “High prices have drawn scrap to the market. Until this wave of scrap gold selling is finished, the price of gold shall struggle to make its way through the resistance at $925 to $930.”

Gold imports into Dubai rose 21 percent to 674 metric tons in 2008 from 559 tons, the Dubai Multi Commodities Centre said yesterday in a statement.

“We anticipate that imports into Dubai, destined for refining and re-export, will continue to perform solidly,” David Rutledge, chief executive officer of DMCC, said in the statement.

Global scrap supply grew 13 percent to 1,108 metric tons in 2008, according to London-based researcher GFMS Ltd. The Middle East saw the biggest increase, with supplies rising 27 percent to 364 tons from a year earlier.