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Gold Advances to Record on Weaker Dollar, Increasing Demand
By Glenys Sim

Nov. 12 (Bloomberg) -- Gold advanced to a record for a second day, driven by speculation that the dollar will extend declines while demand for the precious metal increases as central banks and investors step up purchases.

Gold for immediate delivery rose as much as 0.4 percent to $1,121.90 an ounce. The December-delivery contract on the Comex division of the New York Mercantile Exchange gained for a ninth day, also to a record. Investor Marc Faber said gold wouldn’t again trade at less than $1,000. Shares of producers surged.

“The U.S. dollar’s direction will continue to drive gold prices in the near term,” James Steel, HSBC Securities analyst, wrote in a note e-mailed today. Gold priced in dollars tends to move in the opposite direction to the U.S. currency.

Gold has risen 27 percent this year, heading for a ninth annual gain, the longest winning run since at least 1948, as the Dollar Index tumbled 7.8 percent. The currency has dropped on record-low U.S. interest rates and increased government borrowing to combat recession in the world’s top economy.

“We will not see less than the $1,000 level again,” Faber said at a conference yesterday. “Central banks are all the same. They are printers. Gold is maybe cheaper today than in 2001, given the interest rates. You have to own physical gold.”

The precious metal is below its nominal high after accounting for inflation. Spot gold’s $850 an ounce peak in January 1980 is equivalent to $2,227.84 today after adjusting for inflation, according to the U.S. Labor Department’s inflation calculator.

Gold priced in Australian dollars is 22 percent below its record of about A$1,542.28 an ounce, and the metal in euros is 4.7 percent off its peak, both reached in February.

India, Sri Lanka

News last week of bullion purchases by the Indian and Sri Lankan governments has raised speculation other countries will follow suit. Analysts at Bank of America Merrill Lynch, Societe Generale SA and Barclays Capital have forecast further purchases by central banks, already the biggest holders.

Gold for immediate delivery traded at $1,121.08 an ounce at 10:05 a.m. Singapore time. December-delivery gold advanced as much as 0.7 percent to $1,121.90 an ounce in the longest winning streak since the nine days ending Aug. 26, 1982.

The dollar traded near a two-week low against the euro today before a report tomorrow that is forecast to show Europe’s economy expanded last quarter, damping demand for the U.S. currency. “The dollar is firmly in a downtrend,” said Takeshi Tokita, vice president of foreign-exchange sales at Mizuho Corporate Bank Ltd. in Tokyo.

Producers Rally

Newcrest Mining Ltd., Australia’s biggest producer, gained 2 percent to A$36.02, Lihir Gold Ltd. rose 2.6 percent to A$3.50 and Sino Gold Mining Ltd. added 2.1 percent at A$7.75 at 12:28 p.m. Sydney time on the Australian stock exchange.

Newmont Mining Corp. Chief Executive Officer Richard T. O’Brien said yesterday that $900 an ounce will act as a floor for the price. Shares in the largest U.S. producer of the metal have more than doubled over the past year

The U.S. currency fell to $1.5014 per euro at 9:40 a.m. in Tokyo from $1.4987 in New York yesterday, when it touched $1.5048, the lowest level since Oct. 26. Gross domestic product in the 16-nation euro region expanded 0.5 percent in the third quarter from the second quarter, when it fell 0.2 percent, a Bloomberg News survey of economists showed. The European Union will release the report tomorrow.

Jim Rogers, the investor who predicted the start of the commodities rally in 1999, this month reiterated a forecast that bullion will surge to at least $2,000 over the next decade. To be sure, Nouriel Roubini, the economist who predicted the global economic crisis, said Rogers’s forecast is “utter nonsense.”

To contact the reporter on this story: Glenys Sim in Singapore at [e-mail]
Last Updated: November 11, 2009 21:10 EST


LINK: http://www.bloomberg.com/apps/news?pid=20601081&sid=a2ujIdS3OzHk