Gold Prices Gain on Rising Uncertainty

By Alix Steel
3/21/11 - 8:56 AM EDT
THE STREET

NEW YORK (TheStreet) -- Gold prices were riding fears over lingering uncertainty in Japan and the conflict in Libya higher Monday as safe haven buyers jumped into the market. More on Metals and Mining

Gold for April delivery was adding $13.70 to $1,429.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,433 and as low as $1,423.50. The spot gold price was rising $13.70, according to Kitco's gold index.

Gold prices are benefiting as investors assess the current risk levels of the global economy. Investors were purchasing gold as protection against the continued uncertainty in Japan as well as U.N. airstrikes against Libya. The SPDR Gold Shares(GLD) added almost 10 tons of gold on Friday on renewed buying.

Gold and silver "could be poised for further gains as investors seek to diversify towards safe-haven asset types with a mix of fresh buying and short covering potentially leading gold [and] silver to retest recent highs," says James Moore, research analyst for FastMarkets.

Tepco has reconnected power to six of its dying reactors, which now have access to cooling measures. Smoke was reported near reactor number three and there are indications of high radiation levels in food and water near the plant.

Any food shortages will most likely force global food prices higher, something already crippling emerging market economies. Food Price Watch said that the World Bank's food price index grew "15% between October 2010 and January 2011 and is only 3% below its 2008 peak."

Any hints of inflation are typically good for gold prices as investors buy the hard asset as paper money becomes worth less. The real inflation worriers would have already bought gold as world governments staved off disaster by pumping money into the system in 2008/2009. But for traders and investors who missed that trade, they might be more apt to jump in.

Xinhua News Agency, China's state run newspaper, said Monday that the worry that inflation would be one of the biggest risks "facing the world economy ... has become a reality."

Airstrikes were also continuing in Libya as U.N forces led by France, the U.S. and the U.K. pummeled Gaddafi's forces. Although the goal of the coalition is reportedly not to remove Gaddafi from power but to protect its citizens, the intervention is helping the insurgents keep their rebellion afloat.

Lingering concerns over prolonged oil disruption in the Middle East-North Africa region are also propping up oil prices, which have been moving in tandem with gold prices.

Investors are also running out of safe places to put their money. The yen is typically a safe haven but with G7 nations buying up U.S. dollars and selling yen to push down its value, that asset might provide less cover for investors, which makes gold more appealing.

Although the story for gold might be appealing for investors, traders are still hesitant. Scott Redler, chief strategic officer for T3Live.com, says "I'm still just holding what I have." Redler isn't interested in getting more heavily invested in the gold market. "I don't think it's that exciting, I don't think there's that much upside."

Redler thinks that gold can go higher just not a blockbuster move. The metal jumped 26% in 2010 and has risen just 0.7% in 2011. Goldman Sachs(GS) said Thursday that gold could trade to $1,480 within the next three months, which would be a 4% move.

Redler is also testing the water with a small long position in silver. "I don't think that silver is going to be as [much of a] safety trade like gold ... I think the action in silver might slow down."

Silver prices were adding 95 cents to $36.01 an ounce.

Gold mining stocks, a risky but profitable way to buy gold, rose Friday. Kinross Gold(KGC) was jumping 4.04% at $15.34 while Goldcorp(GG) was up 1.65% to $48.05.

Other gold stocks, Agnico-Eagle(AEM) and Eldorado Gold(EGO) were trading at $67.31 and $16.18, respectively.

--Written by Alix Steel in New York.

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