Monday, March 29, 2010

Gold Rises Most in Week on Haven-Asset Demand, Korea Concern

March 26 (Bloomberg) -- Gold prices rose the most in a week on speculation that demand will increase amid escalating debt concerns in Europe and after a South Korean naval vessel sank near the border with North Korea.

“The bailout of Greece accomplished by the Europeans is only temporary,” said Dennis Gartman, an economist and the Gartman Letter’s editor. “The future of the euro remains dreadfully weak. That means those central banks who had been buying euros as a reservable asset, but are still fearful of owning more dollars, have no choice but to move toward gold.”

The euro gained as much as 1.1 percent against the dollar. European leaders endorsed a Franco-German proposal to help Greece with a mix of International Monetary Fund and bilateral loans. Gold priced in euros reached a record on March 5.

Gold futures for June delivery climbed $11.30, or 1 percent, to $1,105.40 an ounce on the Comex in New York, the biggest gain for a most-active contract since March 16. The price fell 0.2 percent this week.

The euro rebounded from a 10-month low after European leaders put the IMF on standby to help debt-stricken Greece and sought to reduce concerns that divisions on the issue would escalate the nation’s fiscal crisis.

The Greek plan “will no doubt give risk sentiment a short- term boost and is partially behind the gains with gold,” James Moore, an analyst at in London, said in a report. Concern that government debt may expand “will continue to prompt diversification away from fiat currencies and toward more tangible assets, particularly precious metals,” he said.

Korea Concern

Investors also bought gold after the Korean incident. A South Korean patrol vessel sank off the island of Baengnyeong in the Yellow Sea. The cause wasn’t immediately clear. The sinking prompted President Lee Myung Bak to meet with security officials in Seoul.

“We had an oversold condition and when the Korea news hit the desks, gold took off,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.

A rebound by the dollar may limit the metal’s gains, analysts said.

“Gold does not look attractive,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “The dollar is the cream of the currencies. The major problem for the dollar in the past few years has been the strength of the euro, and that is no longer the case.”

Gold rallied 24 percent last year as the euro gained 2.4 percent against the dollar.

Also in New York, silver futures for May delivery rose 16.5 cents, or 1 percent, to $16.906 an ounce on the Comex, down 0.7 percent for the week.

Platinum futures for July delivery fell $11.10, or 0.7 percent, to $1,600.70 an ounce on the New York Mercantile Exchange, extending this week’s decline to 0.5 percent. Palladium for June delivery gained $2.70, or 0.6 percent, to $455.30 an ounce on the Nymex, down 2.8 percent this week.