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Gold May Advance on U.S. Economy Concern, Exchange-Traded Product Demand

Gold, trading near a record in London, may climb on concerns over the strength of the U.S. economic rebound and rising inflows into exchange-traded products. Silver pared gains after advancing to a 30-month high.

Global holdings of gold by ETPs rose to a record yesterday, according to Bloomberg data from 10 providers. Reports today may show that existing home sales in the U.S. climbed in August to the second-lowest level on record, indicating housing remains depressed a year after the economic recovery began, while jobless claims held at a two-month low.

The euro declined from near a five-month high against the dollar after growth in Europe’s services and manufacturing industries weakened more than forecast, fueling concern the region’s economic recovery might lose steam. The 16-nation currency snapped a three-day run of gains against the greenback, which was given impetus by the Federal Reserve’s Sept. 21 statement that it was willing to ease monetary policy further to boost the world’s largest economy.

“To overcome the $1,300 mark with gold should only be a question of time,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. Precious metals prices were “driven by a very weak dollar after the Fed statement,” and are being reinforced by “massive inflows into gold and silver exchange-traded funds as well as high speculative interest.”

Bullion for immediate-delivery was little changed at $1,291.55 an ounce at 10:28 a.m. in London. It reached a record $1,296.30 yesterday. Gold for December delivery was 0.1 percent higher at $1,292.80 an ounce on the Comex in New York, after touching an all-time high $1,298 yesterday.

ETP Holdings Rise

Global holdings of gold by ETPs gained 0.22 metric tons to 2,089.7 tons yesterday, according to Bloomberg data from 10 providers. Holdings are up 16 percent this year. Silver held through four providers of ETPs gained 1 percent to 13,412.25 tons yesterday, the highest in at least seven months, data compiled by Bloomberg show.

“Both gold and silver will go up further,” Briesemann said. The U.S. economy is “still not out of the woods,” he added.

Bullion declined to $1,291.50 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,293.50 at yesterday’s afternoon fixing.

Silver for immediate delivery in London eased 0.4 percent to $21.0662 an ounce, after earlier today gaining as much as 0.3 percent to $21.2225, the highest level since March 2008. Silver is up 25 percent this year.

Home Sales

The dollar dipped near a five-month low against the euro earlier today before rebounding 0.5 percent. The National Association of Realtors report, which is scheduled at 10 a.m. in Washington, is expected to show sales of existing U.S. homes rising to a 4.1 million annual pace in August. That is behind only July’s 3.83 million as the weakest in a decade’s worth of data, according to a Bloomberg survey. A Labor Department report at 8:30 a.m. will show claims for unemployment benefits held at 450,000 last week for a second time, according to the Bloomberg survey.

“If the data is disappointing, then it will definitely weigh on the dollar,” Briesemann said.

Gold, up 18 percent this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed global equities, Treasuries and most industrial metals. The metal rallied as central banks and governments maintained low borrowing costs and spent trillions of dollars to stimulate their economies.

The Fed has kept its benchmark interest rate at zero percent to 0.25 percent and purchased mortgage-backed securities and Treasuries to help bolster the economy.

Inflation and Gold

Policy makers said in their Sept. 21 statement they are “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

Gold has gained this year even as U.S. inflation slowed. Bullion is traditionally bought as a hedge against rising consumer prices. Inflation expectations, based on the 10-year U.S. Treasury breakeven rate, have fallen to 1.89 percent from 2.21 percent six months ago.

“Inflation seems to be below target and new quantitative measures might be imminent,” Briesemann said.

Platinum rose 0.1 percent to $1,634.25 an ounce, after reaching $1,640.38, the highest level since May 19. Palladium slipped 0.7 percent to $542.55 an ounce.

To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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