LONDON — Gold rose in Europe on Thursday as the world's largest gold-backed exchange-traded fund's holdings set a record and Wednesday's equity rally fizzled out, boosting the appeal of gold as a safe investment.
Spot gold rose to $913.15/$914.15 an ounce at 1054 GMT from $906.65 late in New York on Wednesday.
The world's largest gold-backed ETF, the SPDR Gold Trust, said its holdings hit a record on Wednesday, fuelling expectations investor demand will remain strong. They rose 9.18 tonnes or nearly 0.9 per cent to 1,038.17 tonnes “Investor demand for gold is there until we see a sustained rally in equities,” said VTB Capital analyst Andrey Kryuchenkov.
Gold is typically seen as a haven from weak equities and financial sector instability.
European shares fell on Thursday, tracking declines in Asian stock markets amid renewed worries about the health of the global economy.
U.S. stock index futures also pointed to a lower open on Wall Street, on rekindled fears over the global economic outlook and stability of the financial system.
“The inability of the equity markets to build on gains created a climate conducive to higher gold prices... as risk-averse buyers moved cautiously back into bullion,” said HSBC analyst James Steel.
The U.S. dollar meanwhile strengthened 0.5 per cent against the euro as a recent run of risk appetite ran out of steam, boosting interest in the currency as a haven.
While a stronger dollar usually pressures gold, which is typically bought as an alternative to the currency, both assets are moving in the same direction at present as they take their cues from risk aversion.
Among other commodities, oil rebounded towards $43 a barrel after a 10 per cent fall in the past two sessions.
In production news, South African gold output fell 8.7 per cent in volume terms and total mineral production dropped 11 per cent in January compared with the same month in the previous year.
The country is the world's second biggest gold producer after China.
Broker Numis Securities cited falling mine supply, along with risk aversion, physical bullion demand, and the prospect of rising inflation and a weaker dollar, as behind a decision to raise its 2009 gold price forecast to $900 an ounce from $700.
Elsewhere, metals consultancy GFMS said the rate of producer de-hedging – in which miners buy back gold they had previously sold forward to regain exposure to rising prices – slowed in the fourth quarter of 2008 and will further decrease this year.
Dehedging was a major source of gold demand in recent years, but the rate of activity has slowed naturally as the global hedgebook has diminished.
“Higher gold prices tend to make miners keen to dehedge historic gold positions, but the expense of the dehedging can also dissuade miners from taking the pain,” said Fairfax analyst John Meyer.
He said many miners prefer to wait for a pull-back in gold prices before closing out further forward sales.
Among other precious metals, spot silver was at $12.84/12.91 an ounce against $12.75 late in New York on Wednesday.
Spot platinum edged down to $1,047/1,052 an ounce against $1,050, while spot palladium was a touch firmer at $195.50/199.50 an ounce against $195.
Both metals, which are primarily used in car manufacturing as a component in catalytic converters, are suffering from fears over the global economic outlook.
