Gold Declines in London as Equities Rise, May Test $1,000 Again

February 23rd, 2009

By Anna Stablum

Gold eased in London as equities rose and investors locked in gains after the metal climbed above $1,000 an ounce last week for the first time in almost a year.

European and Asian stocks traded higher, pushing up the MSCI World Index for the first time in 10 days. Gold has gained 45 percent since Oct. 24 as confidence in the financial system eroded, while the MSCI index dropped 11 percent.

“Gold is consolidating because of stronger equity markets, but another race above $1,000 and a test of the record high from last March is still very likely,” Carsten Fritsch, a Frankfurt- based commodity analyst at Commerzbank AG, said by telephone.

Gold for immediate delivery slid as much as $11.36, or 1.1 percent, to $981.54 an ounce and was at $985.16 by 12:20 p.m. in London. Futures for April delivery fell $15.70 or 1.6 percent, to $986.50 on the New York Mercantile Exchange’s Comex division. Both contracts climbed above $1,000 an ounce on Feb. 20.

The rally may return as investors seek a haven from turmoil in financial markets and on concern that trillions of dollars injected into the world economy will spur inflation, Fritsch said. “If equities turn lower again, gold will see another test of $1,000 and also of the record high from last year,” he said. Gold in London peaked last year at $1,032.70 on March 17.

The metal was at $987 in the morning “fixing” in London, used by some mining companies to sell production, down from $989 at Friday’s afternoon fixing.

U.S. financial firms have posted more than $750 billion in writedowns and credit losses since last year as the collapse of the housing market led to the worst financial crisis since the Great Depression. President Barack Obama is scheduled to release an outline of his 2010 spending plan this week.

Inflation Concern

Near-unlimited government support for troubled banks will lead to large increases in U.S. government debt, John Reade, an analyst at UBS AG, wrote in a report yesterday. Together with the injections of money into the economy and “the inevitable decline in tax revenues due to the global recession,” investors are concerned about long-term inflation, he said.

“It is these fears that have triggered the recent surge of investment flows into gold,” Reade said. “These fears are only likely to grow in the near term.”

Investor demand has pushed gold holdings in exchange-traded funds to records. Gold held in ETF Securities Ltd.’s Physical Gold exchange-traded fund rose to a record 2.351 million ounces by Feb. 20, according to data on the company’s Web site today.

Investment demand for bullion, including coins and bars, almost tripled to 399 metric tons in the fourth quarter, as total demand climbed 26 percent to 1,036.5 tons, the London- based World Gold Council said Feb. 18.

Gold assets climbed to a record in Zuercher Kantonalbank’s exchange-traded fund. Investment in the ZKB Gold ETF rose to 3.878 million ounces by Feb. 20 from 3.734 million ounces a week earlier, figures e-mailed today from Zurich-based ZKB showed.

Among other precious metals for immediate delivery in London, silver lost 0.7 percent to $14.345 an ounce. Platinum declined 75 cents to $1,081.75 an ounce, while palladium was 0.7 percent lower at $213.50 an ounce


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