Gold Gains on Speculation Low Interest Rates Will Spur Demand
By Nicholas Larkin and Halia Pavliva
June 25 (Bloomberg) -- Gold prices rose on speculation that record-low U.S. interest rates will boost demand for the metal as an alternative investment. Silver also advanced.
The Federal Reserve yesterday left its key bank-lending rate target at zero to 0.25 percent and said it is likely to remain at “exceptionally low levels” for an “extended period.” The central bank also reiterated its plan to buy as much as $1.75 trillion in U.S. Treasury securities and bonds as a way to ease credit. Some investors buy gold to preserve value.
“If interest rates remain low, it’s encouraging for gold,” Bernard Sin, the head of currency and metals trading at Swiss refiner MKS Finance SA, said by telephone from Geneva.
Gold futures for August delivery rose $5.10, or 0.5 percent, to $939.50 an ounce on the New York Mercantile Exchange’s Comex division. The price is up 0.5 percent in the past five sessions.
Bullion for immediate delivery rose $6.91, or 0.7 percent, to $938.31 an ounce at 7:58 p.m. in London. London spot prices are up 0.4 percent this week after three weeks of declines.
Silver futures for July delivery, the contract with the most volume today, rose 9.5 cents, or 0.7 percent, to $14.005 an ounce in New York. The September contract, which has the most open interest, climbed 9 cents, or 0.6 percent, to $14.032 an ounce.
Silver for immediate delivery in London jumped 13.63 cents, or 1 percent, to $14.0013 an ounce at 7:59 p.m. local time.
First-time claims for jobless benefits in the U.S. unexpectedly rose by 15,000 to 627,000 last week, the Labor Department said today in Washington. The Federal Reserve said yesterday that the economy’s slump is “slowing.”
Reminder of ‘Trouble’
Today’s unemployment report is “just a reminder that the labor market is still in serious trouble,” said Ryan Sweet, an economist at Moody’s Economy.com in West Chester, Pennsylvania.
“The poorer-than-expected initial jobless claims support precious metals,” Miguel Perez-Santalla, a Heraeus Precious Metals Management sales vice president in New York, said by e- mail.
Jobless rates “represent one of the principal ‘green shoots’ that observers have placed so much emphasis upon during the current year,” Jon Nadler, an analyst at Kitco Metals Inc. in Montreal, said today in a note. “The Fed is cognizant of not only the fragile state of the green shoots, but also of the dangers that inflation could present if too much time elapses before the interest-rate trigger is finally pulled.”
Still ‘Bullish’
Barclays Capital Plc’s technical analysts, including New York-based Jordan Kotick and London-based Phil Roberts, said in a report today that they are “bullish” on gold in the “medium term,” adding that a “secular uptrend points to further gains to $1,033-$1,200” an ounce. Gold reached a record $1,033.90 on March 17, 2008.
The metal rose to $937.25 in the afternoon “fixing” in London, the price used by some mining companies to sell their output, from $934.25 this morning.
China should buy gold rather than U.S. debt because the Fed’s policies make dollar depreciation inevitable, Li Lianzhong, a senior Communist Party official, told a conference in Beijing today, Market News reported. China’s reserves rose 76 percent in six years to 1,054 metric tons by April, Hu Xiaolian, the head of the State Administration of Foreign Exchange, said on April 24.
The comments “add further support to the long-term outlook for gold,” James Moore, an analyst at TheBullionDesk.com in London, said in a note. “Coupled with the Fed’s ongoing quantitative easing policy and the inflationary pressures this will create, we believe gold will remain supported.”
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged at 1,131.24 tons as of yesterday, the company’s Web site showed.
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net.
Last Updated: June 25, 2009 15:02 EDT
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