Gold climbs on weaker U.S. dollar

JAN HARVEY

Reuters

September 22, 2008 at 6:46 AM EDT

LONDON — Gold climbed in Europe on Monday, reversing earlier losses in Asia, as the U.S. dollar weakened and fears spread that a $700-billion (U.S.) plan to stabilize the financial sector may not succeed.

Platinum group metals also bounced, supported by the weaker dollar and gains in gold, and as traders speculated recent losses in metals may have been overdone.

Spot gold was trading at $872.50/874.50 an ounce at 0940 GMT, up from $871.15 an ounce at the nominal New York close on Friday. Gold prices soared nearly 15 per cent last week as fears over the outlook for the financial sector exploded.

“The U.S. plan has calmed nerves, but I don't think people believe it will take out all the problems yet,” said Standard Bank analyst Walter de Wet. “Details are still sketchy. We need to see when and how the plan the will be implemented.”

“The dollar is still fairly weak compared to where it was two weeks ago, so that also supports gold,” he added. Global stocks made their biggest gains in 20 years after the government announced a plan to tackle the worst financial crisis since the Great Depression.

Gold prices slipped in Asia as some of the safe-haven buying that propelled the metal higher last week evaporated. But they recovered as caution crept back into the markets.

The precious metal rose as equity markets fell in Europe as investors awaited details of the plan, with uncertainty boosting gold's appeal as a haven from risk.

“While the U.S. Treasury's rescue package may be enough to calm some of the froth in the U.S. and global financial markets, the collapse, or near-collapse, of two major institutions and the domino effect this had on the financial sector may again draw more investor diversification towards gold as a safe-haven asset,” said James Moore, an analyst at TheBullionDesk.com.

Weakness in the dollar is supporting gains in gold, which is often bought as an alternative investment to the U.S. currency.

The dollar fell more than 1 per cent against the yen and 0.6 per cent against the euro as traders worried about the financial crisis.

Investor demand for gold is firm. the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, said its gold holdings rose 24.5 tonnes or 3.7 per cent on Sept 19.

The trust's gold holdings have risen nearly 11 per cent from a week ago.

Among other precious metals, silver tracked gold higher, rising to $12.83/12.90 an ounce from $12.55 at the nominal New York close on Friday.

Platinum meanwhile rose more than 4 per cent, and palladium more than 5 per cent, as the weaker dollar supported buying and traders judged the metals' recent slide had been overdone.

Platinum is down 18 per cent and palladium down 15 per cent from a month ago.

“Some buying into the market is to be expected,” said Mr. de Wet. “If platinum falls below $1,050, some of the producers start looking at the longer term viability of the PGMs.”

“Of course, as the dollar weakens it is supportive,” he added.

Citi Investment Research cut its 2008 and 2009 price forecasts for the platinum group metals on Monday – though it expects them to recover in the short term – citing lacklustre outlook for car demand and a firmer dollar.

Spot platinum was at $1,190/1,210 an ounce against $1,134.50 at the nominal New York close on Friday, while palladium was at $242.50/250.50, from $231 on Friday.