Gold Rises as Rally in Crude Oil Spurs Investor Demand for Metal

Gold climbed as higher energy prices damped concern that inflation will remain low and revived demand for the precious metal as a store of value.

Crude futures in New York advanced for the second time in three days. The correlation between gold and oil rose close to 0.4 today, the strongest link since July 2013. A reading of 1 means the prices move in lockstep.

A whipsaw in oil is spurring the biggest price swings for gold in almost nine months. Commodity traders often track energy prices and their impact on consumer costs. In November, the metal slumped to a four-year low as the dollar rallied and demand ebbed for an inflation hedge after crude tumbled.

“The move up in crude prices is giving gold the boost,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “We are seeing some good solid buying today.”

Gold futures for February delivery rose 0.8 percent to settle at $1,208.70 an ounce at 1:47 p.m. on the Comex in New York. The 60-day volatility climbed to the highest since March.

Oil has collapsed into a bear market as U.S. output climbed to the highest in more than three decades amid signs of sagging growth in world demand. Through yesterday, Brent crude tumbled 36 percent this year, the biggest drop among 22 raw materials in the Bloomberg Commodity Index. Federal Reserve officials have said that lower energy prices may hold down consumer costs in the near term.

“We will continue to see higher volatility in gold with oil and interest rate-hike uncertainty,” Tommy Capalbo, a broker at Newedge Group in New York, said in a telephone interview.

Inflation Expectations

On Nov. 7, gold touched $1,130.40, the lowest since 2010. Gains for the U.S. economy have spurred a rally for the dollar as the Fed moves closer to raising rates. U.S. inflation expectations, measured by the five-year Treasury break-even rate, have dropped 24 percent this year, set for the biggest decline since 2008.

Lower gold prices are boosting demand in Asia, Bernard Sin, the head of currency and metal trading at MKS (Switzerland) SA, a Geneva-based refiner, said in a telephone interview. Shanghai trading in the metal has topped last year’s record.

Yesterday, holdings in global exchange-traded funds backed by gold rose for the first time in more than a week, according to data compiled by Bloomberg.

Silver futures for March delivery slid 0.3 percent to $16.412 an ounce on the Comex.

This year, silver has dropped 15 percent, while gold has gained 0.5 percent. The Bloomberg commodity gauge has slumped 11 percent.

On the New York Mercantile Exchange, platinum futures for January delivery advanced 0.8 percent to $1,227.50 an ounce.

Palladium futures for March delivery fell 0.8 percent to $797.55 an ounce. The price dropped for the third straight day, the longest slump since Nov. 6.

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