Gold + $1,000, First Time Since MarchGold Tops $1,000, First Time Since March as Recession Deepens
By Nicholas Larkin and Pham-Duy Nguyen
Feb. 20 (Bloomberg) -- Gold surpassed $1,000 an ounce in New York for the first time in almost a year as investors, hurt by plunging stocks and a deepening recession, sought to protect their wealth.
Gold futures for April delivery jumped as much as $23.80, or 2.4 percent, to $1,000.30 an ounce and traded at $996.60 at 12:03 p.m. on the New York Mercantile Exchange’s Comex division. Gold, the only metal to advance in 2008, has rallied every year since 2000 and was up 10 percent in 2009 before today.
Global stocks have extended their slide, erasing 42 percent of their value since the end of August on concern that the economic slump may worsen and wipe out corporate earnings. Governments are lowering interest rates and spending trillions of dollars to combat the recession, spurring investors to also buy bullion as a hedge against potential inflation. Demand has pushed gold holdings in exchange-traded funds to records.
“One camp of investors is buying gold because of fear the fiscal stimulus packages are insufficient to bring the economy out of recession,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. “The other camp fears the stimulus packages will lead to inflation.”
Gold last topped $1,000 on March 18 in New York, partly as interest rate cuts by the Federal Reserve sent the dollar to an all-time low against the euro. Gold and the dollar generally move in opposite directions. The metal reached a record $1,033.90 on March 17 before retreating to as low as $681 by October. Analysts say the rally may continue as investors lose confidence in financial assets.
Stocks and bonds have trailed gold this year. The Standard & Poor’s 500 Index of equities declined 14 percent through yesterday and the benchmark 10-year U.S. Treasury has returned 0.23 percent.
‘Fragile’ Financial Situation
“The financial situation remains extremely fragile and gold seems to be the only safe haven,” said Ron Goodis, retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. “Currencies are losing value and holders of currencies are losing confidence. Gold may break through $1,000 and not look back.”
As investors have poured money into haven assets, gold has gained even as the dollar has strengthened. The greenback is up 7 percent this year against a weighted basket of six major currencies including the euro and yen.
“People will soon realize the dollar is just as bad as other currencies,” said Mario Innecco, a futures broker at MF Global Ltd. in London.
Government Spending
Investors have been purchasing gold as governments have pledged trillions to ease the global recession and revive credit markets. The U.S. has committed more than $9.7 trillion to resolve the economic crisis.
German lawmakers backed a 50 billion-euro ($63 billion) stimulus package on Feb. 13, the second such measure adopted in Berlin in three months. On the same day, Australia’s parliament cleared a A$42 billion ($27 billion) plan to boost the economy.
Benchmark interest rates in Japan and the U.S. are near zero while the Bank of England has slashed its main lending rate to 1 percent, the lowest ever.
“Given the zero interest-rate policy being pursued by central banks around the world, the incentive to hold national currency has been taken away,” said James Turk, founder of GoldMoney.com. The company had $548 million of gold and silver in storage for investors at the end of January.
Investment Flow
Gold above $1,000 may attract more investors seeking to take advantage of the longest streak of annual advances in the metal’s price in 60 years. Assets in some of the industry’s largest exchange-traded funds are at all-time highs.
Holdings in ETF Securities Ltd.’s gold exchange-traded commodities rose to a record 7 million ounces as of Feb. 13. The SPDR Gold Trust, the biggest ETF backed by the metal, expanded to 1,029 metric tons yesterday, closing in on the reserve holdings of Switzerland, with 1,040 tons, as the world’s sixth-largest owner of gold. Zuercher Kantonalbank’s fund has record assets of 3.734 million ounces.
Investment demand for bullion, including coins and bars, almost tripled to 399 tons in the fourth quarter, as total demand climbed 26 percent to 1,036.5 tons in the period, the London- based World Gold Council said on Feb. 18. Retail and professional investors will continue to seek gold’s stability, said Aram Shishmanian, the council’s chief executive officer.
Eagle Sales Surge
Sales of 1-ounce American Eagle gold coins more than quadrupled in January to 92,000 ounces from a year earlier, the U.S. Mint said this month.
Prices of silver and platinum also rose. Silver climbed 58.5 cents, or 4.2 percent, to $14.52 an ounce in New York. The metal surged 23 percent this year before today, the best-performing commodity this year in the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials.
Gold’s all-time inflation adjusted record is $2,224 an ounce on Jan. 21, 1980, according to a calculator on the Web site of the Federal Reserve Bank of Minneapolis.
“It doesn’t matter right now whether it’s deflation or inflation,” Dennis Gartman, an economist and the editor of the Gartman Letter in Suffolk, Virginia, said in a Bloomberg Television interview. “Gold wants to go up. Don’t fight that trend.”