Gold Rises as Drop From Record, Concern About Slowing Growth Fuel Demand

Gold rebounded from its biggest drop since February 2010 in London as concern about slowing economic growth and debt crises boosted demand for the metal as a protection of wealth. Bullion futures fell in New York.

Gold touched a record $1,913.50 an ounce yesterday before plunging as some investors sold the metal after its gain and as global equities rallied. Moody’s Investors Service cut Japan’s credit rating, while a report showed German business confidence fell to the lowest level in more than a year. German Chancellor Angela Merkel rejected a call to put up gold as security for bailouts, reflecting euro-area divisions.

“We’ve seen a bit of bargain-hunting and people are happy to buy” after yesterday’s drop, Bernard Sin, head of currency and metal trading at bullion refiner MKS Finance SA in Geneva, said by phone today. “People are still very concerned. One of the only avenues still open is gold.”

Immediate-delivery gold rose $17.47, or 1 percent, to $1,845.82 an ounce by 1:01 p.m. in London. It slid 3.6 percent yesterday and is up 30 percent this year. Gold for December delivery was down 0.7 percent at $1,848.40 on the Comex in New York after touching a record $1,917.90 yesterday. Futures spiked about $28 at yesterday’s settlement, Bloomberg data show.

Bullion fell to $1,850 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,876 at yesterday’s afternoon fixing.

Stocks vs. Gold

The metal is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify their holdings away from equities and some currencies. Gold’s 120-day correlation with the MSCI All-Country World Index of stocks fell to -0.76 today, the lowest level since May 2008. A figure of -1 means they move in opposite directions all the time.

Merkel rejected demands that Greece provide collateral for emergency loans as splits emerged in her Cabinet. She said a call by Labor Minister Ursula von der Leyen for countries to put up gold as security for bailouts is “not the right way.” The disagreement underscores risks over a second Greek aid package after the Finnish government said Aug. 16 it secured a collateral arrangement to ensure its contribution would be repaid.

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

‘Well Bid’

“Gold is very well bid every time prices come off,” said Duan Shihua, head of corporate services at Haitong Futures Co. in Shanghai. “This will keep prices supported as investors continue to look for a safe place to put their money.”

Exchange-traded-product holdings fell for a third day yesterday and the most since January, sliding 24.8 metric tons to 2,181.6 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.

Silver for immediate delivery was little changed at $41.9375 an ounce after yesterday touching $44.25, the highest price since May 3. It’s up 36 percent this year.

Platinum was up 0.4 percent at $1,869.60 an ounce. It yesterday reached $1,916.75, the highest price since July 2008. Palladium was little changed at $761.75 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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

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