Gold Rises, Extends Rally Close to Record, on Inflation Concern

By Nicholas Larkin and Halia Pavliva

Sept. 16 (Bloomberg) -- Gold climbed, extending a rally approaching a record, as a global economic recovery may stoke inflation and the dollar’s slump boosted demand for the metal as an alternative investment. Silver rose to a 13-month high.

The worst U.S. recession since the 1930s has probably ended, Federal Reserve Chairman Ben S. Bernanke said yesterday. The dollar slid to its lowest level in almost a year against a basket of six major currencies as the economic outlook reduced demand for the greenback as a haven. Gold futures are trading 1.4 percent below a record $1,033.90 an ounce set in March 2008.

“The inflation story has got people very concerned,” said Bernard Sin, the head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “People are trying to move dollars into commodities, especially gold. The market is really concerned about the behavior of the dollar.”

Gold futures for December delivery advanced $12.20, or 1.2 percent, to $1,018.40 an ounce at 12:16 p.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price reached $1,023.30, the highest since March 17, when the metal climbed to the record.

Bullion for immediate delivery climbed 1 percent to $1,017.28.

Inflation expectations are rising after central banks cut borrowing costs and the Group of 20 nations pledged about $12 trillion to spur their economies. Precious metals have soared this year as investors sought to shield their wealth against inflation and a declining dollar.

On Sept. 11, gold futures closed at $1,006.40, the highest settlement ever.

‘Excess Liquidity’

“The trades are based on better-than-expected U.S. retail- sales data and on a statement from Federal Reserve Chairman Ben Bernanke that the U.S. recession was most likely over,” Jon Nadler, a senior analyst at Kitco Inc. in Montreal, said in a note. “Missing from his declaration was a specific timetable for the removal of excess liquidity provided by the Fed.”

Wholesale prices in the U.S. rose more than twice as much as forecast in August, led by gasoline costs that have since partially receded, according to government figures released yesterday. The 1.7 percent increase in prices paid to factories, farmers and other producers was the fourth gain in five months, the Labor Department said.

“Fundamentals are still generally negative, and the market is overbought,” Tom Pawlicki, an analyst at MF Global Inc. in Chicago, said in an e-mail. “However, prices should make gradual improvements on recent trading ranges due to expectations for higher inflation down the road and due to potential weakness in the dollar.”

Inflation ‘Vengeance’

Before today, gold rallied 14 percent this year as the dollar dropped 5.9 percent against the currency basket.

“Given the commitment of governments and central banks to avoid a deflationary depression at all costs, it is only a matter of time until inflation returns with a vengeance,” Mike Stuart, an analyst at Numis Securities Ltd. in London, said in a report. “Without surging inflation fears, a sustained move over $1,000 would require a continued steady fall in the dollar.”

Silver futures for December delivery rose 40.5 cents, or 2.4 percent, to $17.405 an ounce on the Comex. Earlier, the price reached $17.435, the highest level since Aug. 4, 2008. Before today, the metal gained 51 percent this year.

Platinum futures for October delivery gained $22.20, or 1.7 percent, to $1,342.50 an ounce on the Nymex. Earlier, the price reached $1,348, the highest level in a year.

Palladium futures for December delivery rose $4.65, or 1.6 percent, to $300.90 an ounce. Earlier, the price reached $304.80, the highest level since Sept. 2, 2008.

Before today, platinum gained 40 percent this year, and palladium jumped 57 percent.

“Platinum has the best long-term supply-and-demand fundamentals out of all the precious metals,” John Reade, the head metals strategist at UBS AG in London, said in a note.

Platinum and palladium are used in jewelry and pollution- control devices in cars.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net