World Business
Gold flies to record as investors seek safety
(Agencies)
Updated: 2010-05-13 11:32
 |
Large Medium Small |
Gold prices hit a record high Wednesday as investors sought to hide from fears the European financial bailout will erode world currencies.
The price of an ounce of gold shot up 1.9 percent to $1,242.70, contributing to a strong 5.8 percent rally since last Thursday, when jitters about Greece's debt crisis intensified and helped spark irregular trading on US stock exchanges.
Gold, seen as having intrinsic value irrespective of government policies, is being bought by emerging nations and other investors that have lost faith in the euro as a store of value, says Caesar Bryan, portfolio manager of the Gamco Gold fund.
Demand for gold was evident across the spectrum, with retail sales of coins and bullion surging, exchange-traded gold funds drawing a net flow of over $2.3 billion and open interest in US futures nearing a record amid the European crisis and after last Thursday's tumult in US stock markets.
For most traders, the focus remained squarely on Europe's efforts to stop the Greek debt crisis from spreading to other countries, although some also said that options-related buying and technical momentum had contributed to the gains.
"There is still a lack of confidence in the European community whether or not this is going to halt the euro's decline because this is nothing more than an experiment, and people are not sure if anything will work," Bruce Dunn, vice president of trading at New Jersey-based Auramet Trading.
Spot gold hit $1,248.15 an ounce, a gain of nearly 20 percent since early February. It was at $1,245.25 an ounce at 2:22 p.m. (1822 GMT) from $1,232.05 late in New York on Tuesday. Prices have risen 3.5 percent in two days.
US gold futures settled up $22.80, or 1.9 percent, at $1,243.10 an ounce.
Barclays Capital said that the two key drivers of gold are concerns about the stability of the global financial system and the risk of currency debasement or inflation.
"While the first of these concerns may have been eased by the massive EU/IMF rescue plan, the second has arguably been heightened by it," Barclays said.
Gold priced in euros extended its record high to 988.31 euros an ounce on Wednesday, and has risen 28 percent since early February, outstripping dollar gold's climb.
"The fact that gold bullion is a real asset, which does not depend for its value on any company or government, makes it compelling as a 'safe haven' investment." said Richard Davis, fund manager at BlackRock's Natural Resources team.
Investors and many traders think the scale of Greece's fiscal problems could make it tempting for the country to default, despite the package, which could start a run on the debt of countries such as Spain, Portugal and Italy.
Gold priced in sterling hit a record 840.68 pounds, and in Swiss francs a record 1,385.92 francs.
Gold coins, bar demand strong
A range of investors scrambled for gold exposure over the past week, with open interest in COMEX gold futures jumping nearly 6 percent in the past week to 583,504 lots on Tuesday, less than 10,000 contracts below the January 2008 record.
Smaller-scale investors piled into the world's largest gold-backed exchange-traded fund (ETF), the SPDR Gold Trust, which said its holdings remained at a record high of 1,192.150 tonnes as of May 11, having surged last week.
Gold ETFs, including the popular GLD, have seen more than $2.3 billion in net inflows in the six trading days ended Monday, TrimTabs Investment Research said.
Sales of smaller gold investment products like coins and bars also jumped. The Austrian Mint, which produces the popular Philharmonic gold coin, said it sold more gold in the two weeks from April 26 than in the entire first quarter, while the US Mint is selling coins at twice its normal rate.
Elsewhere Swiss refinery Argor-Heraeus said investor demand for small gold bars and minted products had jumped tenfold since the start of the year.
Spot silver rose to $19.68 an ounce, its highest since March 2008. It was last at $19.64 from $19.28 late on Tuesday.
The world's largest silver-backed exchange-traded fund, the iShares Silver Trust, said its holdings rose to 9,115.15 tonnes as of May 11, up 27.43 tonnes from the previous business day.
Platinum was at $1,740.50 an ounce from $1,702 and palladium at $543.50 from $532 on Tuesday.
But while Europe's debt woes are the spark for gold prices, the precious metal is also getting a lift from:
Questions about how nations are battling debt. Deficit spending is bullish for the price of gold, as is a rising money supply, says Frank Holmes of US Global Investors.
It's also a boon for gold when interest rates on government securities are below the rate of inflation, he says. All these conditions, which are good for gold, exist in the US, he says. Gold is seen as a safe place to park value.
Diversification away from currencies and mainstream investments. Nations with large reserves, such as China and India, are increasingly turning to gold as a place to park money, Bryan says. This is the biggest force behind gold's run, he says.
Meanwhile, individual investors are seeing gold as an asset worth holding in a diversified portfolio, Holmes says. "It's like insurance," he says. "You want to know you have it."
Greater accessibility to investors to trade gold. Various exchange traded funds allow investors to buy gold just as they would buy a stock. Gold ETFs account for about 20% of total gold demand, says Tom Anderson of State Street Global, the sponsor of the SPDR Gold Shares ETF.
Related readings:
Momentum. It's hard to doubt gold after its enormous 36 percent jump over the past year, says Paul Hickey of Bespoke Investment Group.
Gold shines as investors hunt for a safe haven
Gold surges to a fresh all time high
Gold may surpass record
Gold retreats from new high as jobless claims drop
Market historians, though, are dubious gold is now a miracle investment. Gold tends to have poor long-term returns relative to stocks and bonds, says Bryan Taylor of Global Financial Data.
While speculators might do well in gold short-term, it's no place for long-term investors, says Ken Winans of Winans International. "You can make money on gold in times of crisis," he says. "History does not support the view of buying and holding gold."
