Gold May Advance as Demand Increases on Concern About Strength of Recovery

Gold, little changed in New York, may gain for a second day as concern that the world economic recovery could falter spurs demand for the metal as a means to protect wealth.

Asian equities slid for a second day and European stocks were little changed after a U.S. report yesterday showed sales of previously owned homes unexpectedly fell. Purchases of new houses plunged last month, analysts forecast data to show today. Bullion climbed to a record $1,266.50 an ounce on June 21.

“The market is still jittery,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “Weakness in equities may continue to support gold. Gold will continue to be bullish.”

Gold futures for delivery in August added $3.80, or 0.3 percent, to $1,244.60 an ounce at 8:16 a.m. on the Comex in New York. Gold for immediate delivery in London was 0.3 percent higher at $1,243.88.

Bullion rose to $1,243 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,236 at yesterday’s afternoon fixing.

Investors have amassed gold as the sovereign-debt crisis in Europe fanned demand for safer assets, prompting a 14 percent gain in prices this year and a 16 percent increase in holdings in the world’s biggest exchange-traded fund backed by bullion. The metal is headed for a 10th consecutive annual gain, the longest winning streak since at least 1920.

‘Heavily Long’ Market

“Gold is still looking well bid on its unique safe-haven status,” said Peter Tse, head of precious metals with Bank of Nova Scotia in Hong Kong. “However, the market is heavily long and we could see some profit-taking,” he said, referring to bets that prices will rise.

Holdings in the SPDR Gold Trust, the biggest gold-backed ETF, increased 5.17 metric tons to a record 1,313.13 tons yesterday, according to the company’s website. Global holdings of the metal by ETFs rose 6.2 tons to 2,050.6 tons yesterday, according to Bloomberg data from 10 providers.

“Fiat-currency concerns relating to the European sovereign-debt crisis and excess liquidity should be positive for gold” this year, Morgan Stanley said today in a report. Prices may average $1,201 an ounce in 2010, up from a previous estimate of $1,159, the bank said.

Silver for September delivery in New York was little changed at $18.955 an ounce. Platinum for October delivery fell 0.6 percent to $1,593.10 an ounce. Palladium for September delivery lost 0.2 percent to $488.95 an ounce.

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

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