Gold Rises a Second Day in London as Lower Equities Spur Demand
By Nicholas Larkin
March 12 (Bloomberg) -- Gold rose for a second day in London as falling equity markets boosted demand for the precious metal as an alternative investment.
Stocks in Europe and Asia fell for the first time in three days and U.S. futures slid as Japan confirmed its economy shrank at the fastest pace since 1974. Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, advanced 0.9 percent to a record 1,038.17 metric tons yesterday.
Gold “should benefit further in the coming sessions by renewed investment demand as the economic and financial sector outlook deteriorates further,” James Moore, an analyst at TheBullionDesk.com in London, wrote today in a note. “While rallies towards $950 are likely to run into further pockets of long liquidation, we expect dips to remain well supported.”
Gold for immediate delivery rose as much as $8.22, or 0.9 percent, to $917.62 an ounce and traded at $917.08 by 11:30 a.m. in London. April futures added $6, or 0.7 percent, to $916.70 an ounce in electronic trading on the New York Mercantile Exchange’s Comex division.
The metal rose to $914.50 in the morning “fixing” in London, used by some mining companies to sell production, from $899.50 at yesterday’s afternoon fixing. Spot prices, down 8.9 percent since climbing to an 11-month high of $1,006.29 on Feb. 20, reached a record $1,032.70 a year ago.
Scrap Supply
Bullion dropped on 10 of the previous 13 days, partly due to increased scrap supplies because of higher prices.
“Yesterday, for the first time in three weeks, there was more physical gold buying than scrap entering the market,” said Walter de Wet, a London-based analyst at Standard Bank Ltd. “If this trend extends over the next few days, gold should rise again.”
The SPDR holdings are just behind the 1,040.1 tons held by Switzerland, the sixth-largest stockpile. Assets in the fund have increased by 33 percent since the start of the year as investors seek a haven amid the worsening economic crisis.
Industrial production in Germany, Europe’s largest economy, dropped the most on record in January as the recession sapped demand for goods. A report later today will probably show retail sales in the U.S. fell in February for the seventh time in eight months, according to a Bloomberg survey of economists.
The rate of investment in ETFs reflects speculative demand, not fundamental demand, according to Merrill Lynch & Co. analyst Richard Bernstein. Large hedge funds have about $16 billion long exposure to the metal, which has historically signaled a “crowded” trade, he said in a March 10 report.
‘Momentum Investment’
“Gold has become a momentum investment rather than fundamental one” and “the short-term risks to holding gold may be increasing,” Bernstein said. Still, “the long-term diversification benefits of gold seem likely to hold.”
Numis Securities Ltd. today raised its 2009 gold forecast by 29 percent to $900 an ounce because of a “period of increased turmoil.”
Among other metals for immediate delivery in London, silver added 1.1 percent to $12.95 an ounce. Platinum lost 0.2 percent to $1,050.50, and palladium rose 0.4 percent to $198.25 an ounce.
To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net
Last Updated: March 12, 2009 07:47 EDT
