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Gold Extends Rally to 24-Year High on Central-Bank Speculation

Gold Extends Rally to 24-Year High on Central-Bank Speculation

Dec. 8 (Bloomberg) -- Gold prices in New York rose for a sixth straight session, extending a rally to a 24-year high, amid speculation that central banks may be buying the precious metal to bolster reserve assets.

Russia's central bank said on Nov. 15 it may double its gold reserves. Central banks in South Africa and Argentina also have said they may increase holdings of gold. Demand is rising as output in South Africa, the world's biggest supplier, dropped 6.4 percent in October from a year earlier.

``Looking at the recent price action, I suspect that there is a significant buyer out there, probably a central bank,'' said Paul Merrick, vice president of foreign exchange and commodities at RBC Capital Markets in London.

Gold futures for February delivery rose $4.90, or 1 percent, to $522.70 an ounce on the Comex division of the New York Mercantile Exchange, the highest close for a most-active contract since April 1981. The metal has climbed $24 this month and has gained 19 percent this year.

A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.

A decline in the dollar, which fell the most in eight days against the yen and euro, may boost gold's appeal to central banks, said Steve Bennett, a Minneapolis-based investor who owns gold.

Output from mines has dropped 2 percent a year on average since 2001. Jewelry demand in the first half climbed 47 percent in India, 16 percent in Turkey and 14 percent in China, Newmont Mining Corp. Chief Executive Wayne Murdy said yesterday at a Bear Stearns conference.

South Africa's production last year fell 8.8 percent to 342.7 metric tons, the lowest since 1931.

`Fewer Sellers Than Buyers'

``There are fewer sellers than buyers,'' said Paul McLeod, vice president of precious metals at Commerzbank Securities in New York. ``In some respects, people are comfortable with what they have heading into year end.''

Since November 2004, investors poured $4.1 billion into two gold funds, StreetTracks Gold Trust traded on the New York Stock Exchange and iShares Comex Trust on the American Stock Exchange.

These investments have ``refocused investors' attention on the safety, security and liquidity of gold as an alternative to paper assets,'' said Sean Boyd, chief executive of Toronto-based Agnico- Eagle Mines Ltd., owner of Canada's biggest gold mine. ``Gold is the most liquid of the tangible assets.''

Gold valued in all major currencies has climbed this year, led by a 39 percent surge in yen pricing.

To contact the reporter on this story:
Claudia Carpenter in Washington at [e-mail]


LINK: http://quote.bloomberg.com/apps/news?pid=10000006&sid=akye9yYytll8&refer=home