Gold, Silver Prices Rise on Demand for Haven, Inflation Hedge

March 09, 2011, 12:02 PM EST
Bloomberg Businessweek

By Pham-Duy Nguyen

March 9 (Bloomberg) -- Gold and silver rose for the third time in four sessions as mounting tension in Libya and higher energy costs boosted demand for precious metals as an investment haven and an inflation hedge.

Muammar Qaddafi stepped up attacks on towns in western Libya that have risen against him. Crude oil in New York gained as much as 0.9 percent before easing. Gold climbed to a record of $1,445.70 an ounce on March 7.

“The sentiment is just positive for gold and silver,” said Adam Klopfenstein, a senior market strategist at Lind- Waldock in Chicago. “People want to have that fear premium. There’s a flight-to-quality for gold and fear in the backdrop that higher oil prices are inflationary.”

Gold for April delivery rose $2.80, or 0.2 percent, to $1,430 at 11:55 a.m. on the Comex in New York. Before today, the price gained 27 percent in the past year.

Investors are buying the metal before a March 11 protest in Saudi Arabia, Klopfenstein said. Postings on websites have called for a nationwide Saudi “Day of Rage” on that date and March 20, Human Rights Watch said on Feb. 28.

Yesterday, gold held in exchange-traded products rose for a fourth straight session to 2,024.63 metric tons, data compiled by Bloomberg from 10 providers show. Holdings reached a record 2,114.6 tons in December.

Gold’s gains may be limited on speculation that central banks will increase interest rates to slow inflation, eroding demand for the metal as an alternative asset, said Jon Nadler, an analyst at Kitco Inc. in Montreal.

‘Descent Into Madness’

“Over the past month, more and more central bankers have started to sound more and more hawkish, despite the perceived threat that Qaddafi’s descent into madness is thought to possibly pose to the world’s recovering economies,” Nadler said in a report.

Last year, accelerating inflation and increasing sovereign debt drove gold prices up 30 percent, the 10th straight annual gain. Asian countries from China to Indonesia boosted interest rates this year to curb rising consumer prices.

Silver futures for May delivery rose 17.2 cents, or 0.5 percent, to $36.83 an ounce. The price has doubled in the past 12 months.

--With assistance by Maria Kolesnikova in Moscow. Editor: Patrick McKiernan, Steve Stroth

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

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

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