Gold Rises to Highest Since 1983 on Inflation Concern, Supply
Gold Rises to Highest Since 1983 on Inflation Concern, Supply
Nov. 29 (Bloomberg) -- Gold rose in London, reaching $500 an ounce for the first time since February 1983, as investors bought the precious metal to spread the risk in their portfolios amid concern about inflation and as supplies decline.
Gold has jumped 14 percent this year as record energy prices prompted buying as a hedge against inflation. Crude oil rose to a record $70.85 a barrel on Aug. 30, a day after Hurricane Katrina disabled most U.S. oil production in the Gulf of Mexico. Gold supply was little changed in the first half of this year after its biggest decline last year since the 1940s.
``Gold is increasingly seen as an alternative investment class by investors all over the world,'' Wolfgang Wrzesniok- Rossbach, head of marketing and sales at Hanau, Germany-based precious metals processor Heraeus Holding GmbH, said Nov. 28. Investors are buying bullion ``to diversify their portfolios.''
Gold for immediate delivery rose as much as $4.00, or 0.8 percent, to $502.70 an ounce in London, a 22-year high. It traded at $499.41 at 8:30 a.m. London time.
Gold for February delivery rose as much as $4.10, or 0.8 percent, to $506.70 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange, the highest since December 1987. The futures traded at $503.10 an ounce.
A futures contract is an obligation to sell or buy a commodity at a set price by a specific date. A weaker dollar increases the appeal of the bullion against U.S. assets.
`Backdrop'
``The overall backdrop from currencies to inflation is supportive of gold prices,'' Misha Collins, who holds gold mining stocks as part of the A$72 billion ($53 billion) managed by BT Financial Group, said in a phone interview from Sydney. ``There has been a change in investors' perspective on commodities as an investment class and gold is an attractive asset to get into.''
Newmont Mining Corp., the largest producer of the metal, expects the gold price to rise to more than $1,000 an ounce in the next five to seven years as demand from Asian economies outstrips supply, Pierre Lassonde, the company's president, said Nov. 27.
Some investors buy gold in times of inflation, which erodes the value of fixed-income assets such as bonds. Gold futures surged to a record $873 an ounce in New York in 1980, when consumer prices rose more than 12 percent from the year before.
U.S. consumer prices are rising at a 4.9 percent annual pace compared with a 3.7 percent increase a year earlier, U.S. Labor Department data published on Nov. 16 showed.
Oil Demand
Global oil demand usually peaks in the fourth quarter of the year as consumers in the U.S., Japan, and Germany, the world's three largest economies, buy fuel to heat their homes. Oil prices are up almost 31 percent this year.
``There's more buying for investment because people are worried about the dollar's direction and worried about inflation,'' said Ng Cheng Thye, head of the precious metals market desk at Standard Bank Asia, Singapore.
Hedge fund managers and other speculators increased their net-long position in gold futures in the week ended Nov. 22, according to U.S. Commodity Futures Trading Commission data. Long positions, or bets prices will rise, outnumbered short positions by 162,982 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report yesterday.
To be sure, $500 is ``something of a psychological level,'' said BT Financial's Collins. ``It may take a bit more to push pass that convincingly. There may be short-term retracement.''
The metal may fall as low as $455 in the next three months as inflation concerns and demand from jewelers weaken, said Australia & New Zealand Banking Group Ltd. on Nov. 22.
OPEC
Investors are buying the precious metal to spread the risk in their portfolios, with demand for gold coins, bars and bullion-backed shares rising 56 percent in the third quarter from a year ago, according to the World Gold Council.
Members of the Organization of Petroleum Exporting Countries, including top producer Saudi Arabia, have seen oil income soar as prices jumped as much as 61 percent this year.
``We have recently seen new investment demand from the Middle East on the back of the oil price boom,'' Wrzesniok- Rossbach said. ``The fundamental picture is looking good, central banks are investing in gold again, and production is falling.''
Holdings of U.S. Treasuries by the Organization of Petroleum Exporting Countries declined to $54.6 billion in September, from $67 billion in January, according to data compiled by Bloomberg.
Jewelry Demand
Russia's central bank may double its gold reserves, it said Nov. 15. Central banks of South Africa and Argentina have also said they may increase gold holdings. Central banks, mainly in the U.S. and Europe, hold almost a fifth of the world's gold supply as a reserve asset.
Jewelers, who account for 73 percent of demand, typically buy more gold in the second-half of the year to stock up for the wedding season in India and Christmas and New Year celebrations. India is the world's largest gold consumer.
``The demand particularly out of Asia, China and India, has given it some momentum through the third quarter,'' said Michael O'Neill, chief executive of the Melbourne-based Australian Gold Council. Australia is the world's second largest producer. ``There's some anticipation of gold jewelry demand kicking in,'' for Christmas, he said.
Jewelers bought a record $38 billion of gold in the 12 months ended June 30, according to the producer-funded World Gold Council.
South Africa
South Africa, the world's biggest gold miner, this month said it produced 15 percent less of the metal in the third quarter, after job cuts and mine closures. It was biggest drop in at least nine years, according to the country's Chamber of Mines.
The gain in gold prices is prompting mining companies such as AngloGold Ashanti Ltd. to seek new deposits from Mali to Russia.
Gold miners will reverse a five-year slump in investment by spending $2.29 billion on exploration this year, 29 percent more than in 2004, according to Metals Economics Group, a Halifax, Canada-based researcher. Annual spending will be the third- highest since the survey began in 1989, the group said.
Against the euro, the dollar fell more than 1 percent to $1.1850 yesterday, according to foreign-exchange dealing system EBS. It was the biggest drop since Oct. 6. It traded at $1.1821 against the euro at 8:35 a.m. in London.
``That was quite a decline for the dollar and that's driving gold prices to rally,'' Ron Cameron, a metals analyst at Ord Minnett Ltd. in Sydney, said. Investors are also buying more platinum, he said.
To contact the reporters on this story: Tan Hwee Ann in Melbourne at hatan@bloomberg.net; Danielle Rossingh in London drossingh@bloomberg.net
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