Gold Climbs to Highest Price Since December as Credit Losses Spur Demand

Gold climbed to the highest price since December on signals that sovereign-debt risk may erode the value of currencies, boosting demand for the precious metal as an alternative asset.

Holdings in the SPDR Gold Trust, the biggest investment fund that buys bullion, jumped the most in a year. The dollar headed for a monthly gain against the euro as European policy makers neared an agreement to rescue Greece.

“This is a powerful move for gold,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “There’s significant concern over sovereign debt. While the dollar is the least odious of the paper currencies, gold is going to outperform all currencies.”

Gold futures for June delivery advanced $11.90, or 1 percent, to $1,180.70 an ounce on the Comex in New York, after reaching $1,182.50, the highest level since Dec. 4. The record was $1,227.50 on Dec. 3.

The metal rose 5.9 percent in April, the biggest monthly jump since November, after credit ratings in Greece, Portugal and Spain were downgraded by Standard & Poor’s. Gold climbed to records in euros, Swiss francs and sterling this week.

“It is very much the safe-haven appeal of gold that is boosting prices,” said Suki Cooper, an analyst at Barclays Capital in London, who predicts gold will climb to a record in the third quarter.

Crisis May Spread

Prices may accelerate if sovereign-debt worries spread to the U.S., analysts said.

“For the time being, attention remains focused on Europe,” analysts at Deutsche Bank AG said in a report. “An escalation in U.S. sovereign risk would trigger a foreign- exchange adjustment in the U.S. dollar, which we would view as bullish for the gold price.”

The administration of President Barack Obama estimates budget deficits will reach a record $1.6 trillion in the year ending Sept. 30 and total $5.1 trillion over five years. The $1.4 trillion deficit in 2009 was equal to 9.9 percent of gross domestic product, the largest share since the end of the World War II.

Investors also bought gold as an alternative to holding dollars, analysts said. The Federal Reserve this week kept the main lending rate between zero and 0.25 percent to revive the U.S. economy. Rates have been unchanged since December 2008.

Low Interest Rates

Low interest rates will continue to erode the dollar, McGhee said.

Historically, gold has moved inversely to the greenback. Last year, the metal rallied 24 percent as the dollar fell 4.2 percent against a basket of six major currencies, including the euro.

That relationship has changed in 2010 as concern over Europe’s economy reduced the value of the euro and boosted the investment appeal of both gold and the U.S. currency. This year, gold has gained 7.7 percent while the dollar has rallied 5.1 percent against the currency basket.

As of yesterday, the 1.7 percent increase in the SPDR assets this week was the biggest gain since March 2009, figures from the company show. Holdings yesterday rose to a record 1,159 metric tons. That left assets in 19 gold ETFs worldwide at an all-time high of 1,850.1 tons, Cooper said.

Silver futures for delivery in July increased 6 cents, or 0.3 percent, to $18.639 an ounce on the Comex, up 6.4 percent this month.

Platinum futures for delivery in July climbed $11.40, or 0.7 percent, to $1,745.10 an ounce on the New York Mercantile Exchange. The metal rose 6 percent in April.

Palladium futures for June delivery rose $6.75, or 1.1 percent, to $555.75 an ounce, capping a 16 percent gain for the month, the biggest rally since February 2008. The metal has gained for twelve straight months.

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net.

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