Friday, September 4, 2009

Gold Rises to Six-Month High as Weak Dollar Spurs Metal Demand

Sept. 3 (Bloomberg) -- Gold jumped to a six-month high, reaching $999.50 an ounce, on speculation that a weak dollar will boost demand for precious metals as an alternative investment. Silver climbed to the highest price in 13 months.

Gold has gained 4.6 percent this month in the biggest three-day rally since March. The euro has rallied 13 percent against the U.S. currency in the past six months. Gold tends to rise when the dollar weakens. The U.S. Dollar Index, a six- currency gauge of the greenback’s strength, sank as much as 0.5 percent today before erasing the decline.

“The dollar is going to be the main driver for gold strengthening for the rest of the year,” said David Barclay, a metals analyst at Standard Chartered Plc in London.

Gold futures for December delivery advanced $19.20, or 2 percent, to $997.70 an ounce on the New York Mercantile Exchange’s Comex division, after earlier gaining as much as 2.1 percent to the highest price for a most-active contract since Feb. 24.

The dollar index, which includes the value of the euro, yen, U.K. pound, Canadian dollar, Swedish krona and Swiss franc, was at about 78.5 at 3:55 p.m. on ICE Futures U.S. in New York. The index last topped 80 on July 15, when gold touched $942.30.

“I suspect that with the buck capped under 80 on the index, countries such as China are preparing for a dollar debacle,” Ralph Preston, a Heritage West Futures Inc. analyst in San Diego, said by e-mail.

Gaining Momentum

The metal’s close at more than $975 an ounce yesterday “accelerated gold’s momentum to the upside and has set in motion a move to challenge $1,015 resistance level,” Preston said. “A close over $1,000 on a weekly basis would confirm a larger emerging trend.”

“Gold looks poised to make a real run at the $1,000 mark,” Miguel Perez-Santalla, a Heraeus Precious Metals Management sales vice president in New York, said in a note to clients. The metal is poised for the biggest weekly advance in more than four months.

In London, bullion for immediate delivery climbed $14.15, or 1.4 percent, to $992.65 an ounce at 8:59 p.m. local time. Spot prices last topped $1,000 on Feb. 20, and reached a record $1,032.70 in March 2008.

Trending Higher

“The next trending step higher is under way” for gold, SEB AB analysts in Stockholm said today in a report. The metal may rise to $1,112, according to the report.

Silver for December delivery jumped 92.5 cents, or 6 percent, to $16.29 an ounce in New York, after touching $16.31 earlier, the highest price since Aug. 7, 2008. In London, silver for immediate delivery climbed 4.8 percent to $16.14 an ounce.

“Gold prices continue to surge higher as safe-haven buying pushes prices,” Suki Cooper, a Barclays Capital analyst in London, said in a report.

Bullion rose to $983 in the London afternoon “fixing,” the price used by some mining companies to sell their output, from $982.50 in the morning fixing.

Gold futures have climbed 13 percent this year as the dollar index slipped 3.5 percent. The MSCI World Index of developed-country equities jumped as much as 0.7 percent today after yesterday falling to the lowest level in almost two weeks.

“Investors are still worried about a potential correction in the stock market,” London-based broker ODL Securities Ltd. wrote today in a report.

Economic Signals

The European Central Bank left interest rates at a record low 1 percent today and signaled no quick withdrawal of emergency stimulus measures. ECB President Jean-Claude Trichet, at a press conference in Frankfurt, said the euro region’s recovery will be “rather uneven.”

A private report showed U.S. service industries contracted at a slower pace in August than forecast, adding to signs that an economic recovery is emerging. Research firm Retail Metrics said sales at U.S. merchants dropped 2.3 percent last month at stores open at least a year, less than anticipated. The decline indicates consumer spending remains weak.

Unemployment continues to rise as more U.S. workers filed first-time claims for jobless benefits last week than forecast, government figures show, indicating companies remain focused on curbing costs. About 570,000 initial unemployment claims were made last week, the Labor Department said today in Washington. That topped the 564,000 median forecast of economists surveyed by Bloomberg News.

ETF Record

Holdings of bullion in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, increased 1.53 metric tons to 1,063.36 tons as of yesterday, data on the company’s Web site showed. Gold held in ETF Securities Ltd.’s exchange-traded commodities rose by 3,283 ounces to a record 7.99 million ounces yesterday, according to its Web site.

“A good deal” of gold’s move higher “is technical, with models likely to be chasing the break of a recent tight range,” Sydney-based Greg Gibbs, a Royal Bank of Scotland Group Plc strategist, said today in a note. “The ability of gold to continue to rise perhaps tells us that investors are far from calm about the longer-term global economic outlook and the policy response to it.”