Gold Climbs to Record as Falling Dollar Boosts Investor Demand

Nov. 18 (Bloomberg) -- Gold climbed to a record in New York as investors bought precious metals as an alternative to holding weaker dollars. Silver, platinum and palladium reached the highest prices in at least 14 months.

Gold futures jumped to $1,153.40 an ounce, the highest ever, as the dollar declined as much as 0.8 percent against the euro. Before today, the U.S. Dollar Index, a six-currency gauge of the greenback’s value, slid 7.3 percent this year as bullion climbed 29 percent in New York.

“People are buying gold to protect themselves from the decline in the dollar,” said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. “We’re going to see further devaluation in the dollar and there’s a desire for diversification into gold.”

Gold futures for December delivery rose $1.80, or 0.2 percent, to $1,141.20 an ounce on the New York Mercantile Exchange’s Comex unit, advancing for a fourth straight session.

In London, bullion for immediate delivery reached a record $1,152.85 an ounce. The metal traded at $1,142.40 at 7:01 p.m.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has risen 43 percent this year to 1,113.83 metric tons. The fund holds more gold than the government of China.

Institutional Buyers

Demand for gold from governments, pension funds and investors has helped prices rally for a ninth straight year. Monetary-policy makers have set borrowing costs near zero and spent $2 trillion to pull the world out of the recession.

Hedge-fund operator Paulson & Co. plans to start a gold fund in January, the Wall Street Journal reported today. Founder John Paulson may invest $250 million of his own capital in the fund, the newspaper said.

“The free flow of money in terms of low interest rates keeps up the appetite for gold,” Archer’s Platt said.

The U.S. central bank has kept its benchmark interest rate at between zero percent and 0.25 percent for almost a year. James Bullard, the Federal Reserve Bank of St. Louis president, said today that policy makers may not start to raise rates until early 2012. The European Central Bank’s main rate is at 1 percent while the Bank of England’s rate is at 0.5 percent.

The International Monetary Fund said this week that it sold 2 tons of bullion, valued at about $71.7 million, to Mauritius. The sale followed India’s $6.7 billion purchase of 200 tons in October. The IMF plans to bolster its finances by selling 403.3 tons of the metal from its reserves.

The Washington-based lender is the third-largest holder of gold after the U.S. and Germany. China ranks sixth among official holders with 1,054 tons, according to data from the producer-funded World Gold Council.

Mauritius Purchase

“There is a growing concern among a lot of central banks about piling up an ever-increasing amount of dollar assets when the dollar is declining,” said George Milling-Stanley, a gold council managing director. “China, Russia, India, Sri Lanka, Mauritius, a whole bunch of countries that have not looked to increase their gold holdings in a long time, are starting to do that. That’s a seismic shift in the central-banking world.”

Governments, the biggest holders of gold, have been sellers in the past decade. The Central Bank Gold Agreement binds some governments to annual sales caps of 400 tons until 2014.

Reserve Asset

“The gold bull run is not predicated upon inflation but is instead predicated upon the notion that gold is becoming a reservable asset,” said Dennis Gartman, an economist in Suffolk, Virginia, where he publishes the Gartman Letter. Gold priced in euros and sterling also reached records earlier this year.

Some investors use gold to hedge against inflation. The consumer-price index rose 0.3 percent in October from the previous month, following a 0.2 percent increase in September, figures from the U.S. Labor Department showed today.

Gains were limited after some investors sold the metal as the four-session rally pushed spot gold’s 14-day relative- strength index above 70. Some analysts, who use the gauge to forecast price changes, say a level above 70 may signal a drop. The measure has topped 70 since Nov. 12.

“There could be a pullback,” said Aaron Smith, a managing director at Superfund Financial Singapore Pte, who advised long- term investors to hold their positions. “Investors shouldn’t be nervous about that. It won’t be a surprise that we see $1,200.”

Among other precious metals, silver futures for December delivery rose 2.8 cents, or 0.2 percent, to $18.415 an ounce in New York after reaching $18.855, the highest since July 2008.

January platinum fell $10.50, or 0.7 percent, to $1,452 an ounce after touching $1,471.70, the highest since Sept. 2, 2008. December palladium rose $2.15, or 0.6 percent, to $374.15 an ounce. It reached $380 earlier, the highest since August 2008.