Gold, Silver Prices Rise on Demand for Investment Haven, Inflation Hedge

Gold and silver rose for the third time in four sessions as mounting tension in Libya and higher energy costs boosted demand for precious metals as an investment haven and an inflation hedge.

Muammar Qaddafi stepped up attacks on towns in western Libya that have risen against him. Crude oil in New York gained as much as 0.9 percent before easing. Gold climbed to a record of $1,445.70 an ounce on March 7.

“The sentiment is just positive for gold and silver,” said Adam Klopfenstein, a senior market strategist at Lind- Waldock in Chicago. “People want to have that fear premium. There’s a flight-to-quality for gold and fear in the backdrop that higher oil prices are inflationary.”

Gold for April delivery rose $2.40, or 0.2 percent, to settle at $1,429.60 at 1:46 p.m. on the Comex in New York. The price has gained 27 percent in the past year.

Investors are buying the metal before a March 11 protest in Saudi Arabia, Klopfenstein said. Postings on websites have called for a nationwide Saudi “Day of Rage” on that date and March 20, Human Rights Watch said on Feb. 28.

Yesterday, gold held in exchange-traded products rose for a fourth straight session to 2,024.63 metric tons, data compiled by Bloomberg from 10 providers show. Holdings reached a record 2,114.6 tons in December.

Gold’s gains may be limited on speculation that central banks will increase interest rates to slow inflation, eroding demand for the metal as an alternative asset, said Jon Nadler, an analyst at Kitco Inc. in Montreal.

Pimco Report

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund as of February, according to the Zero Hedge website.

Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco’s website on March 2.

The Federal Reserve has kept its benchmark lending rate at zero percent to 0.25 percent since December 2008 and is expected to complete a second round of so-called quantitative easing by June.

“Over the past month, more and more central bankers have started to sound more and more hawkish, despite the perceived threat that Qaddafi’s descent into madness is thought to possibly pose to the world’s recovering economies,” Nadler said in a report.

Sovereign Debt

Last year, accelerating inflation and increasing sovereign debt drove gold prices up 30 percent, the 10th straight annual gain. Asian countries from China to Indonesia boosted interest rates this year to curb rising consumer prices.

Silver futures for May delivery rose 38.9 cents, or 1.1 percent, to $36.047 an ounce. The price has doubled in the past 12 months.

Palladium futures for June delivery dropped $5.05, or 0.6 percent, to $781.65 an ounce on the New York Mercantile Exchange. The metal has gained 67 percent in the past 12 months.

Platinum futures for April delivery fell 60 cents to $1,802 an ounce. The price has advanced 13 percent in the past year.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

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

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