Gold rises on bank scare; holds near lifetime high

| Friday September 10, 2010 00:00

Gold, which is also a few dollars away from a lifetime high of around $1 264/oz struck in June, is on track for its tenth yearly gain -- its longest run of yearly increases in more than 40 years.

On Wednesday, Gold added $3,85 to $1 256,95 after rising as high as $1 259,80 on Tuesday, its strongest since June 28, with investors rattled by a Wall Street Journal report that said 'stress tests' published more than a month ago underestimated some lenders' holdings of potentially risky government debt.

'There's a possibility that we'll see gold breaching the $1 260 level,' said Phillip Futures investment analyst Ong Yi Ling.

'So I think really we are at the level where any economic news that comes out that is less than favourable will drive investors to seek out gold as a safe haven.'

US gold futures for December delivery were barely changed at $1 258,4/oz, having hit a high of $1 261,60 on Tuesday. Silver, which normally tracks gold, was steady after rallying to its highest since March 2008 at $20 an ounce on Tuesday. Platinum and palladium weakened due to declines in equities.

Asian stocks fell and the euro was on the defensive after renewed fears about the euro zone banking system drove it to life lows against the Swiss franc and Australian dollar, hitting financial stocks and dragging equity markets in Europe and the US lower.

'There's a bit of investment buying. It's the same story. Banks in Europe are not stable and people are buying safe haven assets,' said a dealer in Hong Kong. 'We don't see much sale of gold scrap despite higher prices.'

Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, were unchanged at 1 294 442 t, suggesting that investors held on to bullion because of the economic uncertainty.

'I think on the physical side, I wouldn't be too worried about it. It will be the investment demand that will drive the prices higher,' said Ong.

'I look at it breaching $1,260, possibly coming down a little bit and building a base above the $1 250 level.'

Bargain buying from jewellers kept premiums for gold bars steady in Asia, while speculators were keen to cash in after a rebound in bullion prices, dealers said on Tuesday.

Oil fell for a third straight session on Wednesday, with the US benchmark depressed by brimming petroleum stockpiles, as the dollar jumped and Asian equities declined on investor attempts to reduce risk exposure.(Miningweekly)