Gold Jumps to Record Above $1,920 as Debt Concern Boosts Demand

Gold jumped up above the $1,920 level on speculation that the debt crisis in Europe will get worse and that economic growth will slow causing investors to look for ways to protect their wealth. Gold will continue to rise if Europe does not solve their financial problems.

By Glenys Sim and Phoebe Sedgman
September 06, 2011, 2:37 AM EDT
BusinessWeek

Sept. 6 (Bloomberg) -- Gold surged to a record above $1,920 an ounce on speculation that Europe’s debt crisis will worsen, damping economic growth and driving investors to protect their wealth. Futures in India and China, the world’s two largest consumers, touched all-time highs.

Gold for immediate delivery gained as much as 1.1 percent to $1,921.15 an ounce, surpassing the previous peak of $1,913.50 reached Aug. 23. It was at $1,919.85 by 2:12 p.m. Singapore time. December delivery futures in New York also touched a record $1,923.10, up 2.5 percent from their close on Sept. 2. Floor trading in the U.S. was shut yesterday for Labor Day.

“Europe has the capacity to drive gold higher as it looks unlikely to have its problems resolved very soon,” said Darren Heathcote, head of trading at Investec Bank (Australia) Ltd. “I don’t think investors are really convinced that European governments have got what it takes, got the political will to sort out the crisis and also do it sooner rather than later.”

Gold is in the 11th year of a bull run, the longest rally since at least 1920 in London, as investors seek to diversify away from equities and some currencies. It climbed to records priced in euros, British pounds and Canadian dollars today.

Asian equities dropped for a third day as Finnish, German and Dutch finance ministers meet today to discuss a demand by Finland for collateral in Greece’s bailout, threatening rescue measures for the region. U.S. stock futures declined, indicating the Standard & Poor’s 500 Index may slide for a third day before Italian lawmakers debate an austerity package amid a strike called by the nation’s biggest union.

India, China

Gold futures in India, the world’s biggest bullion consumer advanced to a record, gaining as much as 0.9 percent to 28,730 rupees ($623) per 10 grams on the Multi Commodity Exchange of India Ltd. Investment demand in India jumped 78 percent to 108.5 metric tons in the second quarter, while jewelry demand gained 17 percent to 139.8 tons, the World Gold Council said on Aug. 18.

Bullion for December delivery on the Shanghai Futures Exchange climbed for a third day, rising as much as 1.9 percent to an all-time high of 398 yuan ($62.28) a gram. China’s gold investment demand surged 44 percent in the second quarter from a year ago to 53 tons, according to the World Gold Council. That was the second-largest after India.

“Renewed Eurozone debt woes continued to plague financial markets,” Phillip Futures analysts including Ong Yi Ling wrote in a note today. “Political disunity could hamper efforts to solve the debt crisis.”

Gold futures on the Tokyo Commodity Exchange also climbed to a record today.

Central Banks

Gold is up 35 percent this year, outperforming global stocks, commodities and Treasuries as holding in exchange-traded products reached a record 2,216.756 tons on Aug. 8 and central banks added to their reserves for the first time in a generation.

Colombia increased its gold reserves by 2.3 tons in July, according to data on the International Monetary Fund’s website, joining Thailand, South Korea and Russia in adding bullion to reserves this year.

In the second quarter of 2011, central bank and government- institution buying rose almost fivefold to 69.4 tons, taking the first-half total to 192.3 tons, according to the World Gold Council. In 2010, central banks became net buyers for the first time in two decades and they will remain net buyers this year, it said.

Platinum for immediate delivery gained 0.3 percent to $1,894.45 an ounce, trading below gold for a second day. Cash silver rose 0.6 percent to $43.1862 an ounce and palladium added 0.5 percent to $768.50 an ounce.

--Editors: Richard Dobson, Jarrett Banks

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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