Gold Jumps to Three-Week High as Dollar Drops, Equities Climb

Gold futures took another jump and this time it is the to the highest it has been in three weeks. This jump is credited to the dollar's drop which created a demand for commodities. Silver, platinum and palladium also surged alongside gold.

January 10, 2012, 10:52 AM EST
By Debarati Roy and Maria Kolesnikova
Business Week

Jan. 10 (Bloomberg) -- Gold futures jumped to the highest in almost three weeks as the dollar’s drop bolstered demand for commodities. Silver, platinum and palladium also surged.

The greenback dropped for the second straight day against a basket of currencies amid signs that European leaders are taking more steps to stem the region’s debt woes. The MSCI All-Country World Index of equities rose as much as 1.6 percent, and the Standard & Poor’s GSCI Spot Index of 24 raw materials climbed for the fifth time in six sessions.

“The dollar is selling off, benefiting gold and commodities,” Scott Gardner, the chief investment officer at Verdmont Capital SA in Panama, said in an e-mail. “Risky assets have been well bid in 2012 on the heels of relatively solid economic news in the U.S. and the belief that much of the bad news out of Europe has been priced in.”

Gold futures for February delivery advanced 1.8 percent to $1,636.70 an ounce at 10:26 a.m. on the Comex in New York. Earlier, the metal reached $1,641.40, the highest for a most- active contract since Dec. 21.

China’s equities had the biggest three-session gain since October 2010 as slowing trade data boosted speculation that the government may loosen monetary policy to spur economic growth. The country is the world’s top user of industrial metals and the second-biggest gold buyer.

‘Additional Easing’

“The market is starting to sniff out additional easing measures by Chinese officials,” Gardner said.

China, Taiwan, Hong Kong, Vietnam and Thailand may boost gold purchases before the Lunar New Year, according to U.S. Global Investors Inc. The weeklong New Year break starts Jan. 23.

The U.S. Mint already has sold 79,000 ounces of gold coins in January, topping total sales in December of 65,500 ounces.

“Physical investment and jewelry demand has been strong into price falls below $1,650, with Chinese buyers particularly active,” Nick Moore, an analyst at Royal Bank of Scotland Group Plc, said in a report. Demand from China “is likely to increase this month irrespective of price, in the run-up to the Chinese New Year.”

Physical demand in India, the biggest buyer, may also gain as the nation’s policy makers rein in inflation, boosting the rupee after a 16 percent slump last year.

The European Central Bank will likely keep its benchmark interest rate at a record low 1 percent on Jan. 12, according to 52 analyst estimates compiled by Bloomberg. The ECB cut the rate in December and stepped up efforts to boost liquidity as the region’s debt crisis threatened to engulf Italy and Spain.

‘Ultra-Low Yield’

“Even though the market expects no changes to the benchmark rate, some still anticipate the central bank embarking on further policy easing,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report. “Either way, we continue in an ultra-low currency yield environment which is gold beneficial, with little change in the near future for major central banks.”

Silver futures for March delivery climbed 4.3 percent to $30.01 an ounce on the Comex. Earlier, the price reached $30.31, the highest since Dec. 14.

The U.S. Mint already has sold 3.96 million ounces of American Eagle silver coins in January, more than the combined total in the previous two months. The metal is used to make jewelry and products such as solar panels, electronics and batteries.

South African Power

Platinum futures for April delivery rose 2.5 percent to $1,465.80 an ounce on the New York Mercantile Exchange. Earlier, the metal reached $1,475, the highest since Dec. 14.

Palladium futures for March delivery climbed 3.3 percent to $638.50 an ounce on the Nymex. A close at the price would mark the biggest gain since Dec. 30.

Platinum and palladium are used in jewelry and pollution- control devices in vehicles.

Eskom Holdings SOC Ltd., the utility that supplies about 95 percent of South Africa’s power, said yesterday that the risk of electricity outages increased after more generating plants were shut for maintenance.

South Africa is the biggest platinum producer and second- largest source of palladium.

“The country might be subject to a repeat of the 2008 power outages, which severely curtailed platinum production,” Marc Ground, an analyst at Standard Bank Plc, said in a report.

Russia is the top palladium producer.

--With assistance from Glenys Sim in Singapore. Editors: Patrick McKiernan, Daniel Enoch

To contact the reporters on this story: Maria Kolesnikova in London at mkolesnikova@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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