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Gold Breaches $1,000 an Ounce on Dollar’s Weakness, Inflation

By Nicholas Larkin, Halia Pavliva and Kim Kyoungwha

Sept. 8 (Bloomberg) -- Gold futures punched through $1,000 an ounce for the first time in more than six months as a weaker dollar and concern that inflation may accelerate boosted the precious metal’s appeal.

The contract for December delivery surged to $1,004.70 on the Comex division of the New York Mercantile Exchange, taking this year’s rise to about 14 percent. Immediate-delivery metal rose to $1,002.73 an ounce. Gold is set for a ninth yearly gain.

Governments have cut interest rates and boosted spending to fight the worst recession since World War II, spurring investors to buy bullion as a hedge against potential inflation and debasement of currencies. The Dollar Index has lost 4.2 percent this year. Gold typically moves inversely to the U.S. currency.

“There’s not many good options for investors to hedge against a declining dollar and rising inflation,” Hwang Il Doo, head of trading with KEB Futures Co., said today from Seoul. “Gold will rise to $1,100 an ounce by the end of the year, once physical demand from China and India adds fuel to the rally.”

Gold last traded at more than $1,000 on Feb. 20, the first time the metal had breached that price since March 2008. Futures then retreated to as low as $865 on April 6. The December contract added 0.7 percent to $1,003.80 an ounce in New York at 2:19 p.m. in Singapore. Spot gold traded at $1,001.60.

The metal’s advance boosted producers. Newcrest Mining Ltd., Australia’s largest gold-mining company, gained as much as 5 percent to A$34.18, and Lihir Gold Ltd., the second-largest, increased 4.7 percent. Zijin Mining Group Co., China’s largest producer, rose 5 percent in Hong Kong.

Haven Investment

Gold may be cementing its status as a haven investment as governments seek to flood the financial system with cash in an effort to haul the global economy out of a recession. The record for gold futures is $1,033.90 an ounce, reached March 17, 2008.

“The reasons to own gold as an investment make sense,” Sydney-based Greg Gibbs, a Royal Bank of Scotland Group Plc strategist, said in advance of the metal’s gain to $1,000 today. “It is a hedge against policy makers losing control of fiscal and quantitative monetary policies.”

The Dollar Index, a six-currency gauge of the dollar’s value, declined for a third day today.

U.S. President Barack Obama has increased U.S. marketable debt to an unprecedented $6.78 trillion as he borrows to spur the world’s largest economy. Goldman Sachs Group Inc. predicts that the U.S. will sell about $2.9 trillion of debt in the two years ending September 2010.

‘Hint of Hyperinflation’

“Money has been printed massively,” said investor Jim Slater, who was deputy chairman of Galahad Gold Plc before it liquidated in 2008. “Inflation will follow fairly soon” and there may be “a hint of hyperinflation. Even a hint will be very good news for gold,” said Slater.

Crude-oil futures, used by some investors as an inflation- outlook guide, have soared 54 percent this year. Consumer prices will rise 0.9 percent in advanced economies next year compared with 0.1 percent in 2009, the International Monetary Fund forecast in July. In other countries, prices may gain 4.6 percent in 2010, from 5.3 percent this year, the fund said.

Gold at more than $1,000 may attract more investors seeking to take advantage of the longest advance in the metal’s price in 60 years. Assets in some of the industry’s largest exchange- traded funds have reached all-time highs the past few months.

The SPDR Gold Trust, the biggest ETF backed by the metal, reached a record 1,134.03 metric tons on June 1. The fund, which held 1,077.63 tons as of Sept. 4, has overtaken Switzerland as the world’s sixth-largest gold holding.

Indian Demand

Investors bought 222.4 tons of bullion in the second quarter, 46 percent more than a year earlier, the World Gold Council said in August. That’s less than 595.9 tons in the first quarter, when investment demand exceeded usage by jewelers for the first time since at least 2004.

The National Spot Exchange Ltd. in India, the world’s largest consumer, launched small-denomination contracts in June to lure households to trade physical gold. In China “ongoing strength in demand” led by individual investors boosted sales 6 percent in the second quarter, the World Gold Council has said.

“The market has the power to move up further,” said Ellison Chu, a metals manager with Standard Bank Asia Ltd., citing dollar weakness. Still, “the risk is that speculative investors could be tempted to sell out,” said Chu.

Other precious metals have outperformed gold this year. Silver for immediate delivery gained as much as 2.3 percent to $16.705 an ounce today, the highest since August 2008. It has climbed 46 percent this year.

Platinum added 0.6 percent to $1,267.50 an ounce, increasing its gain this year to 36 percent. Palladium, the best performing precious metal this year, was 0.3 percent lower at $293.25 an ounce. It has gained 57 percent in 2009.

“We are still skeptical that this is a sustainable rally and a comeback could be very painful,” Andrey Kryuchenkov, a VTB Capital analyst in London, said before today’s advance in gold. “Risk-averse buying is nowhere near the levels we saw last winter.”

To contact the reporters on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net

Last Updated: September 8, 2009 02:27 EDT