Gold Rallies to Record in Best Run Since 1980

Date: Monday, July 18, 2011
Author: Claudia Carpenter, Blomberg.net

Gold rose to a record above $1,600 an ounce as debt concerns in Europe and the U.S. boosted demand for the metal as a protection of wealth. Bullion climbed to all- time highs in euros and pounds and silver topped $40 an ounce.

President Barack Obama is pressing congressional leaders for a multitrillion-dollar agreement in deficit-cutting talks as negotiators near an Aug. 2 deadline for raising the debt limit. A default would cause more panic than the collapse of Lehman Brothers Holdings Inc. in 2008, former Treasury Secretary Larry Summers told CNN in an interview broadcast yesterday. Treasuries rose and the euro fell amid concern European leaders will fail to stop the region’s spreading debt woes at a summit this week.

“The market is showing concerns that the debt problem is not going away,” said Bernard Sin, the head of currency and metal trading at MKS Finance SA, a bullion refiner in Geneva. “Investors are happy to accumulate and $1,700 is not difficult to achieve” by the end of the year, he said.

Immediate-delivery gold gained as much as $7.85, or 0.5 percent, to $1,601.40 an ounce and traded at $1,600.95 by 11:40 a.m. in London. Prices are up for an 11th day, the longest streak of gains since July 1980. Gold for August delivery was 0.7 percent higher at $1,601.50 an ounce on the Comex in New York after reaching a record $1,601.90.

Gold is up 13 percent this year, heading for an 11th straight annual gain, the longest winning streak since at least 1920 in London. The MSCI All-Country World Index of equities gained 1.5 percent in 2011, the Standard & Poor’s GSCI Index of 24 commodities is up 9.2 percent and Treasuries returned 3.5 percent, according to a Bank of America Merrill Lynch index.

Record in Euros

Bullion rose to $1,598.25 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,587 at the afternoon fixing on July 15.

UBS AG’s Zurich sales desk on July 15 had the most gold coin demand since last summer, the bank said today in an e- mailed report. Bullion jumped to a record 1,141.42 euros and 996.71 British pounds today after European Central Bank President Jean-Claude Trichet reiterated his opposition to any restructuring of Greek debt.

Euro-area leaders will meet in Brussels on July 21 to discuss the “financial stability” of the region, European Union President Herman Van Rompuy said July 15. The second summit in a month follows a worsening of the crisis that drove bond yields to euro-area records across Europe’s most debt-laden nations.

“The situation in the euro area, as well as the proliferation of the debt-ceiling problem in the U.S., continues to be a very strong focus,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. (NAB), said by phone from Melbourne. “It’s difficult to see the problems and downside risk to global growth being less of a focus.”

Record Lows

Bullion almost doubled since December 2008 as the Federal Reserve kept interest rates at a record low and governments spent trillions of dollars to prop up the economy after the worst global recession since World War II. The Treasury Department has warned the U.S. debt ceiling must be lifted by Aug. 2 to avoid default. Standard & Poor’s and Moody’s Investors Service are threatening to downgrade the government’s credit rating if Congress doesn’t act.

Holdings of the metal in exchange-traded products rose 0.6 percent to 2,101.9 metric tons on July 15, data compiled by Bloomberg show. That’s the highest level since December.

“As long as sovereign debt concerns continue to stimulate the fear trade, we are likely to see the fall-off in physical demand from Asia being somewhat offset by Europe,” said Edel Tully, an analyst at UBS in London. “These levels are now very attractive for scrap supply and indeed the market met a lot of offers.”

Silver at $40

Silver for immediate delivery climbed as much as 2.6 percent to $40.3175 an ounce, the highest level since May 4, and was last at $40.28 for a 30 percent rise this year. The best- performing precious metal in 2011 slumped as much as 35 percent from a record $49.79 an ounce set April 25 as Comex’s owner, CME Group Inc. (CME), raised the cost of making new speculative positions.

Palladium for immediate delivery in London gained 13 cents to $783.51 an ounce. It has fallen 2.3 percent this year after almost doubling last year. Platinum rose 0.1 percent to $1,763 an ounce, and is down 0.5 percent this year. Platinum and palladium are mainly used in jewelry and pollution-control devices in automobiles.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

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