Gold, platinum galloping
GOLD and platinum rose to records as a declining dollar increased demand for precious metals as alternatives to stocks and bonds. The dollar fell as traders increased bets that the Federal Reserve will lower US interest rates to avoid a recession. Gold has gained 8.3 per cent this year and the dollar has fallen more than 1.9 per cent against the euro, to a seven-week low. Oil and base metals such as copper also rose, lifting the UBS Bloomberg Constant Maturity Commodity Index to the highest ever.
‘‘ We’re in a falling rate environment. I think that works in gold’s favoUr,’’ Richard Urwin, London-based head of asset allocation at BlackRock Investment Management, says. ‘‘ We’re probably in an environment in which, on average, the dollar is going to depreciate. Gold is a good hedge against it.’’
Gold futures for February delivery rose $5.70, or 0.6 per cent, to close at $903.40 an ounce on the Comex division of the New York Mercantile Exchange. The price earlier reached $915.90, the highest ever for a mostactive contract. Twenty-three of 29 traders, investors and analysts from Mumbai to Chicago who were surveyed by Bloomberg on January 10 and 11 advised buying gold this week. Five said sell, and one was neutral.
The market is still extremely bullish,’’ says James Moore, an analyst at TheBullionDesk.com in London. With the US potentially cutting interest rates while those in Europe stay firm, the dollar looks set to add additional upside momentum.’’
The dollar declined on speculation US borrowing costs will fall below those denominated in currencies held by members of the European Union.
Fed funds futures contracts on the Chicago Board of Trade show 54 per cent odds the Fed will cut its 4.25 per cent target rate for overnight bank loans to 3.75 per cent at its January 30 meeting. The Fed lowered the rate 1 percentage point last year. The ECB raised rates twice in 2007 to 4 per cent.
Demand for gold will be less affected by a global slowdown than silver, platinum and palladium, says Walter de Wet, head of commodity research in Johannesburg at Standard Bank Group Ltd, Africa’s largest lender.
Industrial uses for gold, such as dentistry and electronics production, made up 15 per cent of total demand in 2006 compared with more than 50 per cent for platinum and 47 per cent for silver, according to estimates by London-based research company GFMS Ltd. Jewellery accounts for almost 60 per cent of gold consumption.
The investment component of demand for all of these precious metals is dominating,’’ de Wet says. ‘‘ We’re likely to see an increase in all of these metals but gold is probably going to outpace.’’ The gains may last until the second half of this year, he says.
‘‘ We believe the broader investor base is not yet involved in gold, which remains a very small market,’’ Citigroup Inc analyst John Hill says. Investment demand for bullion, excluding purchases for jewellery, totalled $13 billion in 2007, he says.
Investors may also prefer gold to stocks, analysts say. The Standard & Poor’s 500 Index has fallen 3.7 per cent this month.
‘‘ People are looking at precious metals as principally a safe haven while they ride out a correction in equity markets,’’ Peter McGuire, managing director at Commodity Warrants Australia Ltd, says.
Gold has had a correlation of 0.71 against the euro-dollar exchange rate in the past three months, compared with 0.67 in the previous three months. A reading of 1 would mean the two moved in lockstep.
Gold still is cheaper than its inflationadjusted price. In 1980, futures reached a record $873 an ounce, which would be the equivalent of about $2186 last year, based on an inflation calculator on the Minneapolis Federal Reserve website.
Silver for immediate delivery rose to $16.3113 an ounce after earlier rising to $16.60, the highest since November 1980.
Platinum for immediate delivery rose to $1,573 an ounce, after earlier touching a record $1,592. The precious metal is used in products such as jewellery and auto-emissions control equipment.
Macquarie Group Ltd. raised its forecast for the average platinum price this year by 16 per cent to $1475 an ounce. It also increased its 2009 and 2010 estimates by 15 per cent.
Palladium for immediate delivery advanced to $381.75 an ounce.
Gold and other precious metals may decline in the short-term as some price gauges show the rallies have been overdone.
‘‘ We are more concerned about the prospects for a sharp correction in all the precious metals rather than for near-term gains,’’ UBS London-based analyst Robin Bhar says. ‘‘ It is clear that there are very large speculative positions present in gold and that gold is vulnerable to a sharp correction in price at any time.’’ Bloomberg
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