Gold May Rise on Investment Demand, Rebound From Biggest Drop in a Month

Gold may rebound from the biggest slide in a month in London as speculation that European banks will struggle to raise money increases demand for the precious metal as a means of protecting wealth.

The metal dropped 1.8 percent yesterday after reaching a record $1,265.30 an ounce. European Central Bank governing council member Christian Noyer yesterday said some banks in the 16-nation euro region face funding difficulties. European equities fell for the first time in 10 days.

“Gold continues to be seen as a safe haven against ongoing debt default and inflation concerns,” said James Moore, an analyst at TheBullionDesk.com in London.

Gold for immediate delivery added 75 cents, or 0.1 percent, to $1,234.45 an ounce at 11:43 a.m. in London. The metal for August delivery was 0.4 percent lower at $1,235.30 on the Comex in New York.

Bullion slid to $1,235.25 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,254.50 at yesterday’s afternoon fixing.

The metal is up 13 percent this year and is headed for its 10th consecutive annual gain, the longest winning streak since at least 1920, amid speculation that debt-cutting measures by European nations will slow growth. German Chancellor Angela Merkel will deliver a speech on financial-market reform in Berlin later today.

“Some banks have started facing increasing funding problems,” the ECB’s Noyer said yesterday. “The situation reflects a general state of uncertainty which, left unchecked, could have significant consequences on financial stability.”

‘Strong Demand’

Gold “is profiting from its status as a safe haven and is likely to remain in strong demand as long as doubts persist about the chances of successfully resolving the debt crisis in Europe,” Eugen Weinberg, head of commodity research with Commerzbank AG, wrote in a report. “Investors are therefore still trying to protect their investments with gold.”

The euro reached its strongest level in almost a month against the dollar yesterday and most commodities gained after China said it may allow the yuan to move higher, making raw materials priced in other currencies less expensive for Chinese consumers.

“Gold may come under additional pressure if greater renminbi flexibility is seen as an indication that the Chinese authorities envisage a more stable global economic climate,” HSBC Securities analyst James Steel said in a report.

Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, have risen 15 percent this year. The holdings were unchanged at a record 1,307.96 metric tons yesterday, the company’s website showed. Global holdings of the metal by ETFs fell 0.5 ton to 2,044.4 tons yesterday, according to Bloomberg data from 10 providers. That’s the first decline in two weeks.

Silver for immediate delivery in London was little changed at $18.7225 an ounce. Platinum lost 0.1 percent to $1,586.65 an ounce, and palladium was down 2.1 percent at $482.55 an ounce.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net.

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