Gold climbs above $1,250/oz on economic concerns

| Thursday September 2, 2010 00:00

Spot gold hit a high of $1,251.45 an ounce and was at $1,250.55 an ounce at 0920 GMT, against $1,248.99 late in New York on Tuesday. Silver hit its highest since May 17 at $19.53 an ounce and was later at $19.42 an ounce against $19.34.

Deutsche Bank analyst Daniel Brebner said concerns over economic activity in the United States were leading to 'a growing acceptance that if conditions remain poor or deteriorate further, the Fed will move to support growth.'

'There is an expectation that deflationary risk is being actively mitigated, and that the risk longer term is increasingly one of inflation,' he said.

'That, and perhaps longer-term concerns over volatility in forex and interest rates, is sending some increased capital into the precious metals.'

Concerns over the outlook for the U.S. economy and a return of worries over euro zone sovereign debt levels have led to volatility in equities and other assets seen as higher risk in the past month, boosting gold's appeal as a haven.

The precious metal hit session highs early on Wednesday as European shares turned briefly lower, having traded near its previous two-month highs earlier in the session.

Stock markets later recovered, tracking Asian shares, which benefited from a rebound in Chinese manufacturing.

On the foreign exchange markets, the euro climbed 0.6 percent against the dollar, while the Japanese yen steadied against the U.S. currency after hefty gains.

Commodities largely firmed, with oil rising 0.8 percent after the Chinese data, having fallen in the previous session, and base metals ticking higher.

On the investment side of the bullion market, holdings of the major gold and silver exchange-traded products, which issue securities backed by physical stocks of the precious metals, rose on Tuesday, suggesting healthy investor interest.

The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, added another 4 tonnes of metal to its stocks, while the largest silver ETF, the iShares Silver Trust, increased its holdings by more than 30 tonnes.

The SPDR reversed July's outflows to record a monthly gain in its holdings in August. Swiss bank, UBS, said gold holdings of the 12 ETFs it tracks rose 1.38 million ounces in August.

'While (that) was modest compared to May's 4.8 million ounces and June's 2.6 million ounces, the trend of rising ETF appetite is important for market sentiment, and indeed the longevity of gold's current rally,' it said in a note.

'For gold to make a convincing attempt at the previous record high of $1,265, ETF buying will need to intensify.'

Among other precious metals, platinum was at $1,532.50 an ounce against $1,516.40, while palladium was at $510.50 against $496.70.

Investors are continuing to eye the prospect of strike action in South Africa, source of four out of five ounces of the world's platinum.

South Africa's National Union of Mineworkers on Wednesday said its members at Northam Platinum are voting in favour of a strike over wages at the firm, although a final count is still pending. -(Reuters)