Gold rose, heading for the biggest weekly gain since September, as the global economic slump dragged down asset prices and boosted the appeal of the precious metal as a store of value. Silver and platinum also gained.
Gold was the biggest gainer today, followed by silver, among 19 commodities on the Reuters/Jefferies CRB Index. As economies in the US, Japan and Europe head into recession, central banks may be forced to lower interest rates and pump more liquidity into the financial system, devaluing their currencies, analysts said.
"Hard assets for hard times," said Frank McGhee, the head dealer at Integrated Brokerage Services. "Even with all the money central banks have thrown at the financial system, it's not enough to stop systemic risk. People are looking for something that's going to go up, and that's gold."
Gold futures for December delivery rose $US45.40, or 6.1%, to $US794.10 an ounce on the Comex division of the New York Mercantile Exchange. A close at that price would leave gold up 6.7% this week, the biggest gain for a most-active contract since the week ended September 19.
Silver futures for March delivery rose 51.1 cents, or 5.7%, to $US9.56 an ounce on the Comex.
Platinum futures for January delivery gained $US31.90, or 4%, to $US822 an ounce on the Nymex. Palladium for March delivery rose $US1.15, or 0.6%, to $US182.20 an ounce.
"Any steps to avert deflation would be bearish for the dollar and a signal for gold to rally in 2009," analysts at Deutsche Bank said in a report. "In the 1930s, a relatively quick solution to deflation in the US was a significant depreciation in the US dollar."
Gold is the only asset in the Deutsche Bank Commodity Long Index that's posted gains over the past month, the bank said.
Goldman Sachs said the US recession would be deeper than it had previously predicted, with gross domestic product likely to decline at an annualized rate of 5% in the current quarter, and the unemployment rate will reach 9% by the end of 2009 from 6.5% last month.
"The dollar will start to soften once the global liquidation panic is over," said Adrian Day, president of Adrian Day's Asset Management. "The positive factors for gold are longer term. The massive dollar creation will lead to a dollar decline."
The Federal Reserve lowered the benchmark interest rate 4.25 percentage points from September 2007 to October and signaled further cuts at its last meeting.
The collapse of Lehman Brothers in September triggered a $US700 billion US government bailout for banks. The Standard & Poor's 500 Index yesterday closed at the lowest level in 11 years.
