Gold Rises to a Record as Slowing Growth Spurs Investor Demand

Gold climbed to a record in New York and London as concern that global economic growth may be slowing boosted demand for the metal as a protection of wealth.

Manufacturing indexes in the U.S., Europe and China declined in July, raising concern that the global recovery is losing momentum. Gold fell yesterday after the House of Representatives passed a measure to raise the U.S. debt limit and cut federal spending. The Senate is scheduled to vote on the deal today. The metal touched all-time highs in euros, pounds and Canadian dollars.

“All the ongoing economic uncertainty and fears of a downgrade of the U.S. AAA sovereign rating are gold supportive,” Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote in a report. “Weak macro numbers would also delay the tightening cycle in the U.S.”

Gold for December delivery gained as much as $22, or 1.4 percent, to $1,643.70 an ounce and traded at $1,641 by 8:39 a.m. on the Comex in New York. Immediate-delivery gold was up 1.2 percent at $1,638.50 in London and reached a record $1,640.05.

Gold is up 15 percent this year, heading for an 11th straight annual gain, the longest winning streak since at least 1920 in London. The MSCI All-Country World Index of equities rose 0.3 percent in 2011, the Standard & Poor’s GSCI Index of 24 commodities is up 7.9 percent and Treasuries returned 4.5 percent, according to a Bank of America Merrill Lynch index.

Slower Growth

The U.S. Institute for Supply Management said yesterday that its factory index dropped to 50.9 last month from 55.3 in June, expanding by the slowest pace in two years. China’s purchasing manufacturing index moderated to 50.7 from 50.9, while a manufacturing gauge in the euro region dropped to 50.4 from 52, reports yesterday showed.

The House voted 269-161 to approve the measure, which raises the national debt ceiling enough to fund the government until 2013 and threatens automatic spending cuts to enforce a goal of cutting $2.4 trillion over the next decade. That goal falls short of the long-term deficit savings that President Barack Obama and Republican leaders initially sought.

The Treasury Department said it would run out of options for avoiding default today without action by Congress to raise the $14.3 trillion ceiling. The U.S. still faces the threat of a rating downgrade, Bill Gross, who runs the world’s biggest bond fund, said yesterday on PBS’s Nightly Business Report.

“Increasing the debt ceiling is not going to make the debt go away, while the debt problems in Europe aren’t going to be resolved overnight, and we’re seeing all these getting reflected in the weaker economic numbers,” said Zhang Yingying, an analyst at brokerage Galaxy Futures Co.

‘Well-Supported’ Prices

Holdings of the metal in exchange-traded products rose for a sixth day yesterday, climbing 1.4 metric tons to a record 2,153.6 tons, data compiled by Bloomberg show.

Gold prices are “well-supported at current levels” as central banks move excessive foreign-exchange holdings into bullion and inflation in China and India boosts the lure of the metal, Gary Halverson, regional Australia-Pacific president at Barrick Gold Corp. (ABX), the world’s largest producer, said today at a conference in Kalgoorlie, Australia.

The Bank of Korea bought 25 tons over a one-month period from June to July, lifting its reserves to 39.4 tons, the central bank said, declining to comment on the price and plans for additional purchases. Thailand’s gold reserves rose to about 4.07 million ounces in June, from about 3.523 million ounces in May, according to figures on the Bank of Thailand’s website.

Silver for September delivery in New York rose 1.4 percent to $39.86 an ounce. Palladium for September delivery gained 0.6 percent to $834.80 an ounce. Platinum for October delivery was 0.2 percent higher at $1,799 an ounce.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

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

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