Gold May Gain on Speculation Greece Bailout Will Weaken Dollar

Gold may gain on speculation that a bailout for Greece will hurt the dollar and boost demand for the metal as an alternative investment. As long as Greece meets the conditions for the bailout, the finance ministers will probably approve the bailout and debt exchange.

By Nicholas Larkin and Phoebe Sedgman
February 17, 2012, 10:37 AM EST
Businessweek

Feb. 17 (Bloomberg) -- Gold may gain in New York, extending a weekly advance, on speculation that a bailout for Greece will hurt the dollar and boost demand for the precious metal as an alternative asset.

Germany wants euro-area finance chiefs to avoid splitting consideration of a 130 billion-euro ($171 billion) Greek rescue and a bond swap to cut the nation’s debt load at a meeting next week, coalition lawmakers were told. As long as Greece meets conditions for the aid, the finance ministers meeting in Brussels will probably approve the package along with the debt exchange, three German officials said. The dollar fell as much as 0.3 percent against the euro today.

“The leaders are on the way to approve the aid to the country,” analysts at Hyderabad, India-based Karvy Comtrade said in a report today. This may “lift the euro and also optimism of the European Union chiefs’ approval of the second aid on Monday may keep the metal strong for the day.”

Gold for April delivery gained 0.4 percent to $1,735.50 an ounce by 8:48 a.m. on the Comex in New York. Prices are up 0.6 percent this week. Bullion for immediate delivery was 0.4 percent higher at $1,734.05 in London.

Wrangling among euro-area finance ministers on a Feb. 15 conference call over how to reduce Greece’s debt load and tighten control of the aid raised the prospect of a two-step process, according to two people familiar with the talks. In that scenario, the ministers’ Feb. 20 gathering in Brussels would be limited to kicking off the bond exchange and deferring decisions on the rest of the bailout funds.

ETP Holdings

Holdings in bullion-backed exchange-traded products rose 2.3 metric tons yesterday to 2,389.7 tons, within 0.2 percent of December’s record, data compiled by Bloomberg show. Twelve of 22 traders and analysts surveyed by Bloomberg expect prices to gain next week and five were neutral as billionaire hedge-fund manager John Paulson told investors it’s time to buy the metal as protection against inflation caused by government spending.

“We like gold, we’re overweight there,” Michael Vogelzang, who oversees $2.1 billion as chief investment officer at Boston Advisors LLC, said in a Bloomberg Television interview. “We think gold is going to be the beneficiary of what will be required by central banks around the globe and that is continued monetary stimulus in whatever form.”

Silver for March delivery gained 0.5 percent to $33.525 an ounce. It’s the best-performing precious metal this year, up 20 percent.

Palladium for March delivery rose 0.1 percent to $697.55 an ounce after holdings of the metal in ETPs rose 0.1 ton yesterday to a three-month high of 55.98 tons. Platinum for April delivery was up 0.8 percent at $1,639.40 an ounce. Holdings in platinum backed ETPs at 42.03 tons are the most since Nov. 28.

--With assistance from Glenys Sim in Singapore. Editors: John Deane, Sharon Lindores

To contact the reporters for this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net;

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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