BLBG: Gold Rises a Second Day in London on Inflation-Hedge Demand
Gold rose for a second day in London on speculation that government spending will spur inflation and the dollar will weaken, boosting demand for the metal as a hedge and alternative investment. Silver and platinum rose.
The U.S. Senate is weighing an estimated $885 billion economic stimulus plan backed by President Barack Obama. Holdings in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, rose to a record 859.49 metric tons yesterday. The European Central Bank today kept interest rates at 2 percent after the Bank of England lowered its rate.
“Expectations of future inflation and dollar depreciation are driving the market right now,” Bayram Dincer, a commodity analyst at Dresdner Bank in Zurich, said by phone.
Bullion for immediate delivery rose as much as $14.76, or 1.6 percent, to $920.51 an ounce and traded at $917.33 at 1 p.m. in London. April futures added $16.40, or 1.8 percent, to $918.60 in electronic trading on the Comex division of the New York Mercantile Exchange.
The metal rose to $914.75 in the morning “fixing” in London, used by some mining companies to sell production, from $905 at yesterday’s afternoon fixing. Spot prices are up 4 percent this year.
Gold may reach $1,000 within three months, Goldman Sachs Group Inc. said. The “rally has been driven by surging demand for gold in all forms: physical gold, exchange-traded funds, and futures contracts as investors seek a safe ‘store of value’ amid the financial distress and inflation risks,” Goldman analysts Jeffrey Currie and David Greely said in a report dated yesterday.
Lower Interest Rates
Central banks have lowered interest rates and governments are spending trillions of dollars to revive economies. The ECB kept its benchmark interest rate at 2 percent today, while the BOE lowered its rate by 50 basis points to 1 percent, the lowest in its history. Economists expect the ECB to cut rates to a record low of 1.3 percent next month.
“At the very least a severe global recession is upon us and thus gold will outperform other asset classes in the coming months,” Mark O’Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin, wrote today in a note.
Among other metals for immediate delivery in London, silver gained 2.3 percent to $12.82 an ounce. Platinum climbed $18.50, or 1.9 percent, to $985 an ounce, and palladium was 3.2 percent higher at $202.75 an ounce.
