Gold surges 2 percent to record on economic fears

NEW YORK Fri Aug 19, 2011 1:35am IST

One kilogram gold bars are seen in this picture illustration taken at the Korea Gold Exchange in Seoul August 9, 2011. REUTERS/Jo Yong-Hak

One kilogram gold bars are seen in this picture illustration taken at the Korea Gold Exchange in Seoul August 9, 2011.

Credit: Reuters/Jo Yong-Hak

Related Video

Video

World Gold Council Q2 Report

Thu, Aug 18 2011

NEW YORK (Reuters) - Gold rallied 2 percent to a new high above $1,820 an ounce on Thursday after U.S. data pointed to a stalled economy, while renewed concern about the health of European banks brought additional safe-haven buying.

Bullion's fourth consecutive daily rise came after news that factory activity in the U.S. Mid-Atlantic region plummeted and existing home sales unexpectedly dropped.

Investors dumped stocks and other riskier assets for the perceived security of gold and U.S. government bonds. The Dow Jones industrial stock average fell 5 percent and crude oil plunged 7 percent. Bullion is headed for its seventh straight weekly gain.

However, a break above $2,000 an ounce could be difficult due to weaker interest in gold exchange-traded funds and after a $350 rally in the past 1-1/2 months, analysts said.

"We hold gold because we believe that inflation will be part of the solution to address the problems of the world," said Axel Merk, portfolio manager of Merk Funds, which has $750 million in assets.

"We are potentially entering a stagflationary period," Merk said, referring to persistent inflation combined with stagnant growth and high unemployment.

Spot gold was up 2.1 percent at $1,825.60 an ounce by 3:00 p.m. EDT, having hit a record $1,828.50. It is poised to log a 10 percent gain over the last two weeks, its best two-week performance since mid-February 2009.

U.S. gold futures for December delivery settled up $28.20 at $1,822 an ounce. Trading volume topped 240,000 lots, the highest this week but below last week's pace.

Silver rose 1.2 percent to $40.65 an ounce.

In addition to the disappointing manufacturing and home sales reports, U.S. Labor Department data showed that consumer prices increased at the fastest pace in four months in July, while weekly initial jobless claims rose.

Adding to market nervousness and interest in gold was a Wall Street Journal report that the U.S. Federal Reserve Bank is taking a closer look at the U.S. units of Europe's biggest lenders.

Bullion rose broadly across major currencies, with gold priced in Japanese yen surging to a record, and euro-priced and sterling-priced gold near all-time highs.

On the gold options front, the CBOE Gold ETF Volatility Index, which is often referred to as the "Gold VIX" and is based on SPDR Gold Trust options, spiked 5 percent, the biggest jump in a week.

"Option dealers are buying a lot of calls and they are very bullish," said Jonathan Jossen, independent COMEX gold options floor trader. Investors are using option strategies such as bull call spreads and fences to bet on the metal's upside, he added.

GOLD DEMAND FALLS

Some analysts said gold could pull back as much as 30 percent. On charts, the relative strength index shows bullion is well into overbought territory, and the metal has breached a multi-year rising channel top, suggesting a correction is possible.

The World Gold Council said overall gold demand fell 17 percent in the second quarter as growing interest in jewelry, coins and bars failed to offset a sharp decline in ETF buying.

In addition, metals consultant GFMS, a unit of Thomson Reuters, said gold could hit $1,900 an ounce in the next six months, driven by buyers seeking an investment safe from global economic problems, but a further rise to $2,000 looks unlikely.

Platinum was down 0.1 percent at $1,833.00, while palladium dropped 2.5 percent to $751.28 an ounce.

(Additional reporting by Amanda Cooper in London; Editing by Alden Bentley and Dale Hudson)

Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Republic Day

Reuters Showcase

RK Laxman Dead

RK Laxman Dead

'Common Man' cartoonist RK Laxman dead at 93  Full Article 

Banking Revolution

Banking Revolution

India turns to corner shops, mobile phones for banking revolution.  Full Article 

Nuclear Group

Nuclear Group

China urges India to take steps to satisfy standards of NSG  Full Article 

Gold Market

Gold Market

Chinese gold demand holds up ahead of holiday, Indian buying weak  Full Article 

India-U.S. Relations

India-U.S. Relations

Column - U.S. and India should join to balance China's rise  Full Article 

Padma Bhushan

Padma Bhushan

India honours Bill Gates with civilian award  Full Article 

Fashionable Modi

Fashionable Modi

When Modi met Obama, his name was all over - his suit  Full Article 

New Greek PM

New Greek PM

Greek leftist Tsipras sworn in as PM to fight bailout terms  Full Article 

Australian Open

Australian Open

Venus fireworks illuminate Australia Day  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage