Gold May Gain as Greece Downgrade Boosts Demand for Safe Assets

Gold may advance for the first time in three days as Greece’s ratings downgrade raised concern that the European sovereign-debt crisis will linger, boosting demand for the metal as an alternative asset.

Spot bullion gained as much as 0.3 percent to $1,365.95 an ounce and traded little changed at $1,362.32 an ounce at 4:38 p.m. in Seoul. The price dropped 0.6 percent last week, the second straight weekly decline. The February-delivery contract in New York was little changed at $1,361.40 an ounce.

“The Greece downgrade is helping gold,” said Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul. “Uncertainties around the region are boosting the metal, helping it emerge from weakness since the start of the year.”

Greece on Jan. 14 had its credit rating cut to junk by Fitch Ratings, following similar downgrades at Moody’s Investors Service and Standard & Poor’s. European finance ministers meet this week to discuss the crisis.

Gold gained 30 percent last year, advancing to a record $1,431.25 an ounce, as the European Central Bank and the International Monetary Fund bailed out Greece and Ireland.

Bullion is likely to reach $1,500 per ounce in the first quarter and may then retreat if the market expects central banks to end quantitative easing, according to Dong Tao, economist at Credit Suisse Group AG. Prices may climb to more than $2,000 in the next five to 10 years as inflation enters a new era, he said on Jan. 15.

Indian Demand

Gold demand in India, the biggest consumer, is “very good” as high prices fail to deter buyers, according to Rajesh Exports Ltd., the nation’s largest jewelry maker and exporter.

Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, said gold was “toppy” and advised clients to reduce their positions by half. Last week, he recommended cutting holdings of gold and silver by a third.

Gold assets in exchange-traded products dropped 6.5 metric tons to 2,077.81 tons as of Jan. 14, the lowest level since Sept. 15, according to data compiled by Bloomberg from 10 providers. Silver holdings were unchanged at 14,943.60 tons as of Jan. 14, data from four providers show.

Silver for immediate delivery lost 0.6 percent to $28.31 an ounce, reversing an earlier gain of as much as 0.7 percent. The metal dropped 0.7 percent last week.

Cash platinum gained 0.2 percent to $1,815.50 an ounce after rising 4.6 percent last week. Immediate-delivery palladium dropped 0.4 percent lower at $793.50 an ounce after jumping 6 percent last week.