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Gold Rises to Record on Increased Demand for Wealth Protection

Gold rose to a record for the second time this week as the dollar’s drop spurred demand for the precious metal as a hedge against turmoil in the global economy and financial markets. Silver extended a rally to a 30- month high.

In New York, gold climbed as high as $1,279.50 an ounce as the dollar fell to a five-week low against the euro. Holdings in exchange-traded funds backed by the metal are up 16 percent this year as U.S. and European central banks keep interest rates at record lows to revive the economy.

“Gold is the place to be,” said Lannie Cohen, the president of Capitol Commodity Services Inc. in Indianapolis. “Investors are very concerned that all the money that central banks around the world are printing is out of control. Gold is the only way to preserve your wealth.”

Gold futures for December delivery gained $5.10, or 0.4 percent, to settle at $1,273.80 at 1:50 p.m. on the Comex in New York. The two previous all-time highs were $1,276.50 on Sept. 14 and $1,266.50 on June 21. The metal has climbed 16 percent this year.

Silver futures for December delivery rose 20 cents, or 1 percent, to $20.771 an ounce. Earlier, the price advanced to $20.825, the highest level since March 17, 2008.

Photographer: Frantzesco Kangaris/Bloomberg

A bullion dealer, examines a gold bar weighing one kilo at Gold Investments, in London. Close

A bullion dealer, examines a gold bar weighing one kilo at Gold Investments, in London.

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Photographer: Frantzesco Kangaris/Bloomberg

A bullion dealer, examines a gold bar weighing one kilo at Gold Investments, in London.

Gold for immediate delivery rose to a record $1,278.02. The metal headed for the 10th straight annual gain, the longest rally since at least 1920.

Spot gold will average $1,260 in the fourth quarter and $1,300 in the first quarter of 2011, Bank of America Merrill Lynch said today in a report.

‘Looking for Excuse’

“Gold is at a stage where people are just looking for an excuse to buy it,” said Tom Winmill, who helps manage $120 million at the Midas Fund in New York. “Gold is just another tool for capital appreciation. Keep an eye on the creation of new money, and that will tell you how much further gold has to go.”

The metal will rise to $1,400 this year and $1,500 next year, Winmill said.

Gold priced in euros, sterling and Swiss francs rose to all-time highs in June.

“Gold is rapidly becoming the currency of choice,” Cohen of Capitol Commodity Services said. The metal may surge to $1,600 next year as the dollar extends a slump against major currencies, including the yen and euro, he said.

The greenback has dropped 1.6 percent in the past month against a basket of six currencies. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said that it may take decades for the U.S. economy to recover, Bloomberg Businessweek reports in its Sept. 20 issue.

‘Long Time’

“An expansion in credit, debt and deregulating over the past 10 or 20 years got us here,” Gross said on Sept. 7 at a roundtable of four economists organized by Bloomberg Businessweek. “It was a 10- to 20-year process moving in, and it will probably take a long time moving out.”

The Fed last month resumed direct purchases of Treasuries. Goldman Sachs Group Inc. said the central bank may announce as early as November more asset purchases to support a fragile economy.

“Gold has recently been driven notably by the perceived increasing probability of a new round of quantitative easing in the U.S.,” said Anne-Laure Tremblay, a London-based analyst at BNP Paribas SA. “Quantitative easing tends to be supportive of asset prices and is fueling concerns about the potential longer- term inflationary impact of such measures.”

The metal has gained amid tame U.S. inflation, moving away from a traditional role as a hedge against rising consumer prices. Inflation expectations, based on the 10-year U.S. Treasury breakeven rate, have fallen to 1.78 percent from 2.25 percent six months ago.

Platinum futures for October delivery rose $6.60, or 0.4 percent, to $1,611.90 an ounce on the New York Mercantile Exchange, That capped the fourth straight gain, the longest rally since early August.

Palladium futures for December delivery fell $10.25, or 1.8 percent, to $549.35 an ounce.

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net.

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