Gold Futures Rebound as Drop From Record Price Spurs Demand From Investors

Gold futures rebounded after investors snapped up the precious metal as an alternative to currencies following a decline from a record. Silver also gained.

The euro dropped against most major currencies after Ireland’s credit rating was downgraded, adding to concern that Europe’s debt crisis will escalate. Gold slid 2.3 percent in the previous two days after reaching a record $1,432.50 an ounce on Dec. 7.

“The bottom line is that investors are losing faith in paper money,” said Lannie Cohen, the president of Capitol Commodity Services Inc. in Indianapolis. “Gold will continue to act as the currency of choice.”

Gold futures for February delivery rose $9.60, or 0.7 percent, to settle at $1,392.80 on the Comex in New York. The price has gained 27 percent this year, heading for the 10th annual gain.

“If you were in Europe, you’d be buying gold to preserve your wealth,” Cohen said. The metal priced in euros reached a record on Dec. 7.

U.S. Federal Reserve policy makers meet on Dec. 14 to discuss a potential plan to extend Treasury purchases to support the economy. President Barack Obama this week agreed to extend tax reductions to boost growth, a measure that may widen the $1.3 trillion budget deficit.

Inflation Expected

“The government is not going to cut back on spending, so the bull camp is looking ahead to inflation,” said Adam Klopfenstein, a senior strategist at Lind-Waldock, a broker in Chicago.

Gold assets in exchange-traded products fell 3.38 metric tons to 2,097.98 tons yesterday, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,104.65 tons on Oct. 14.

“People are happy to buy here,” said Bernard Sin, the head of currency and metal trading at MKS Finance SA, a bullion refiner in Geneva. “There’s still a lot of concern in the euro zone and the U.S.”

Gold’s gains may be limited this month as traders book 2010 profit, Klopfenstein of Lind-Waldock said.

“This is no longer a buy-and-hold trade,” he said. “For the rest of the year, the bears and the bulls are going to duke it out.”

Silver futures for March delivery advanced 56.5 cents, or 2 percent, to $28.817 an ounce. On Dec. 7, the metal reached $30.75, the highest price since March 1980. The price has jumped 71 percent this year.

Palladium, Platinum

Palladium futures for March delivery gained $12.65, or 1.7 percent, to $741.60 an ounce on the New York Mercantile Exchange. The metal has surged 81 percent this year.

Platinum futures for January delivery fell $2.50, or 0.1 percent, to $1,678.90 an ounce. The price has gained 14 percent this year.

Platinum ETP holdings jumped 0.94 ton to 35.76 tons yesterday, the highest amount since at least February, data compiled from three providers show. Palladium assets gained 1.94 tons to 67.44 tons, also the highest amount since at least February.

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

To contact the editors responsible for this story: Steve Stroth at sstroth@bloomberg.net

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