Gold Climbs as Irans Nuclear..........Gold Climbs as Iran's Nuclear Decision Spurs Demand for Haven
By Pham-Duy Nguyen
Aug. 21 (Bloomberg) -- Gold in New York jumped the most in five weeks on demand for an investment haven after Iran rejected the suspension of its uranium-enrichment program, setting the stage for heightened tensions with the U.S. and Europe.
``This is a gold buy on a potential expanded military conflict with Iran,'' said Frank McGhee, head metals trader at Integrated Brokerage Services in Chicago. ``If we end up with sanctions against Iran, then Iran will threaten to use oil against us. It's rebuilding the wall of worry that ran gold up to a 26-year high.''
The precious metal often moves in lockstep with crude oil, which climbed on concern supplies may be disrupted from the Middle East, the source of almost a third of the world's petroleum. Gold has climbed 22 percent this year, while oil gained 18 percent.
Gold futures for December delivery rose $13.50, or 2.2 percent, to $635.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest percentage gain since July 11. The metal dropped 5.3 percent in the past two weeks.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
The United Nations has given Iran until Aug. 31 to accept a European Union-led proposal of incentives, and suspend uranium enrichment, or face the prospect of economic sanctions. Iran began a new round of enrichment June 6, the day the incentives were delivered in Tehran, the UN's International Atomic Energy Agency said.
`Energies Pop'
``If Iran doesn't cooperate and the energies pop, I'm real convinced gold is going to follow it,'' said Matt McKinney, a commodity broker at Infinity Brokerage Services in Chicago. ``If oil gets back to $78, we can see gold top out.''
Oil climbed to a record $78.40 a barrel on July 14 on concern fighting in Lebanon between Israel and Hezbollah may spread throughout the Middle East.
Gold reached a record $873 an ounce in January 1980, the highest ever, when Iran cut supplies, doubling oil costs and sparking a surge in the inflation rate. The metal climbed to $732 on May 12.
A weaker dollar also helped boost gold. The metal generally moves in the opposite direction of the U.S. currency, which fell to a 10-week low as traders reduced expectations the Federal Reserve will raise interest rates again this year. The dollar is down 7 percent against a basket of six major currencies this year.
`Fed on Hold'
``The dollar has some room to the downside with the Fed on hold,'' said Jim Pogoda, an investor in Summit, New Jersey, and a former precious-metals trader for Mitsubishi International Corp. ``Gold should benefit from this.''
Some analysts say gold's gains may be limited because U.S. economic data suggests that inflation has been contained.
``Gold prices will be little changed this week on the benign inflation news,'' said Thomas Au, principal at R.W. Wentworth & Co., a New York-based consulting company.
U.S. Treasuries rose, pushing yields on the 10-year notes to the lowest since March, on signs that inflation and growth in the U.S. are slowing.
``The rally in bonds is about slowing growth more than it is about comfort regarding inflation,'' said Michael Alfstad, bond trader and chief executive officer of Alfstad Capital LLC in Seattle.
Prices paid by U.S. consumers in July rose at an annual rate of 4.1 percent, less than June's 4.3 percent rate, the government said last week.
``Inflation looks better controlled,'' said Patrick Chidley, an analyst with Barnard Jacobs Mellet LLC in Stamford, Connecticut. ``However, pressure continues on the dollar and real interest rates are still going nowhere. Firm support for gold should still be in place.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net .
Last Updated: August 21, 2006 14:20 EDT