Gold Rallies After Dropping From Record

Gold rebounded after dropping from an all-time high above $1,900 an ounce as investor concern that worsening sovereign-debt crises are exacerbating a global economic slowdown increased demand for a store of value.

Immediate-delivery gold advanced as much as 1.4 percent to $1,853.98 before trading at $1,844.32 at 2:37 p.m. in Singapore. The metal touched a record $1,913.50 yesterday before closing 3.7 percent lower on speculation that the U.S. Federal Reserve will act to stimulate the faltering economy, boosting stocks.

Japan’s sovereign-credit rating was lowered by Moody’s Investors Service today, following the first cut of the U.S.’s sovereign grade this month by Standard & Poor’s. The move comes amid concern the euro-area debt crisis may worsen after German Chancellor Angela Merkel rejected a call by her nation’s Labor Minister Ursula von der Leyen for countries to put up gold as security for bailouts, reflecting euro-area divisions.

“Gold is very well-bid every time prices come off,” said Duan Shihua, head of corporate services at Haitong Futures Co. and the top-rated gold analyst this year in an annual poll by the Futures Daily and Securities Times. “This will keep prices supported as investors continue to look for a safe place to put their money.”

Central bankers from around the world gather on Aug. 26 in Jackson Hole, Wyoming, for an annual meeting that last year saw Fed Chairman Ben S. Bernanke hint at a second round of asset purchases. That’s created speculation the Fed may move again at this meeting to bolster the economy.

Central Banks

“Three pillars are set to strengthen and drive prices further into uncharted territory,” Barclays Capital analysts including Suki Cooper said in a report today. These are a “structural shift in macroeconomic instability,” investment demand and the return of central-bank buying, they said.

Central banks are unlikely to sell their gold even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.

“You sell off your one asset that really would produce a major bang for your buck, and what happens is 12 months down the track, you find that your debt position is still deteriorating,” said Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd. “You don’t then have the asset backing in the form of a high gold price for your reserves to bolster your creditworthiness.”

Gold for December delivery in New York fell as much as 1.6 percent to $1,831.50 an ounce before trading at $1,848.20. Cash silver and palladium were little changed at $41.89 an ounce and $761.25 an ounce, respectively. Spot platinum increased 0.5 percent to $1,871.60 an ounce.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net