BLBG: Gold Advances for Third Day as Dollar Weakens, Boosting Demand
Gold rose to the highest in almost two months as a drop in the dollar boosted investors’ interest in the metal as an alternative asset, and a producers’ group said investment demand gained in the first quarter.
The dollar fell to an eight-week low against the yen after the U.S. Federal Reserve projected a deeper recession and said it may boost asset purchases. The Dollar Index, a measure of the dollar against six major currencies, fell yesterday to the lowest point this year. Gold typically advances when the U.S. currency drops as investors buy the precious metal as a refuge.
“The gold-friendly environment remains intact in our view, with a weakening U.S. dollar,” Stefan Graber, analyst at Credit Suisse Group AG, said in a report today. Rising inflation expectations and “low” interest rates would also spur renewed investment demand for the precious metal, Graber wrote.
Immediate-delivery gold gained for a third day, rising 0.4 percent to $942.24 an ounce at 11:29 a.m. in Singapore. Earlier, the metal touched $943.10, the highest since March 26, taking gains from year’s low of $802.59 to about 17.5 percent.
Gold was buoyed by the “sharp rise in investment demand” shown in a World Gold Council report yesterday, the Credit Suisse report said. Global gold purchases rose 38 percent in the first quarter, led by investment demand that exceeded usage by jewelers for the first time since at 2004, the council said.
Worldwide demand increased to 1,015.5 metric tons compared with 733.9 tons a year earlier, the London-based council said. Investment purchases more than tripled to 595.9 tons while jewelry demand fell 24 percent to 339.4 tons.
Government ‘Largesse’
Some members of the U.S. Federal Reserve noted “a further increase in the total amount of purchases might well be warranted” to spur a recovery in the economy, according to minutes of an April 28-29 Federal Open Market Committee meeting released yesterday. Governors and district-bank presidents cut growth projections in forecasts submitted at the meeting.
“The Fed may expand its asset-purchase program, which would increase the supply of greenbacks,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA. “This could undermine the value of the dollar.”
Dollar weakness, driven by U.S. government “largesse,” may spur gains in gold and push the metal to a record, Nicole Elliott, London-based senior technical analyst at Mizuho Corporate Bank Ltd., wrote in a May 19 note. Spot gold set a record of $1,032.70 on March 17 last year.
“The main gold-price driver of the day was the U.S. dollar,” Jon Nadler, senior analyst at Kitco Metals Inc., said in a report. A rise in crude oil to six-month highs yesterday also “helped matters for gold,” Nadler wrote. Crude fell today.
Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, stood unchanged at 1,105.62 tons as of May 20, according to figures on the company’s Web site.
Gold for June delivery in New York gained 0.5 percent to $942.20 an ounce at 11:32 a.m. in Singapore.
Silver advanced 0.4 percent to $14.35 an ounce after surging 3.9 percent in the past two days. Platinum was little changed at $1,154.50 an ounce, and palladium dropped 0.8 percent to $233 an ounce.
