Gold Rises to a Record on Japanese Rate Cut, Demand for Wealth Protection

Play Video

Oct. 5 (Bloomberg) -- Peter Hambro, chairman of Petropavlovsk Plc, a gold and iron ore mining and exploration company in Russia, talks about the outlook for gold prices. Hambro, speaking from Moscow, also discusses plans to sell shares in IRC Ltd., the company's iron-ore unit in an initial public offering. He speaks with Maryam Nemazee on Bloomberg Television's "Countdown." (Source: Bloomberg)

Gold climbed to a record in London and New York after Japan cut its key interest rate and said it would step up asset purchases and as the dollar weakened, boosting demand for gold as a protection of wealth. Silver advanced to a 30-year high.

The Bank of Japan pledged to keep its benchmark interest rate at “virtually zero” after unexpectedly reducing borrowing costs for the first time since 2008 and expanding its balance sheet. The dollar slipped as much as 0.8 percent against the euro after yesterday falling to a six-month low. Bullion usually moves inversely to the greenback.

The Bank of Japan announcement “spurred buying because it’s more quantitative easing,” said Walter de Wet, an analyst at Standard Bank Plc in London. “The liquidity that’s going to be around is going to drive gold higher. There’s also some dollar weakness.”

Immediate-delivery bullion added as much as $13, or 1 percent, to $1,328.25 an ounce and traded at $1,325.85 at 11:51 a.m. in London. Gold for December delivery was 0.7 percent higher at $1,326.60 an ounce on the Comex in New York after reaching $1,329.60.

Bullion rose to a record $1,325.75 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,313.50 at yesterday’s afternoon fixing.

Gold, up 21 percent this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed global equities, Treasuries and most industrial metals, prompting record investment in gold- backed exchange-traded products. The metal rallied as central banks and governments maintained low borrowing costs and spent trillions of dollars to stimulate economies.

Japan Cuts

The Fed has left its benchmark interest-rate target at a record low and pledged to take more steps to spur growth if necessary. Japan’s central bank today cut the overnight call rate target to a range of 0 percent to 0.1 percent, from 0.1 percent, and set up a 5 trillion yen ($60 billion) fund to buy government bonds and other assets.

“Today’s decision by the Bank of Japan confirms that there’s still concern about the economic recovery,” said Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul. “Such concerns will continue propping up gold.”

Gold may reach $1,500 by the end of the year and $2,500 an ounce “in a year or so,” Peter Hambro, chairman of Petropavlovsk Plc, Russia’s third-largest producer of the metal, said today in an interview with Bloomberg Television’s “Countdown.” Prices may climb to $2,000 within the next 10 years, Rogers Holdings Chairman Jim Rogers said yesterday in a CNBC interview. Rogers said he owns gold and silver and is “pessimistic” on the future value of the dollar.

Silver Surges

Prices have gained this year even as U.S. inflation slowed. Bullion is traditionally bought as a hedge against rising consumer prices. Inflation expectations, based on the 10-year U.S. Treasury breakeven rate, have fallen to 1.81 percent from 2.31 percent six months ago.

Gold assets in ETPs declined 0.7 metric ton to 2,094.3 tons yesterday, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,097.01 tons on Sept. 30 and are up 17 percent this year.

“Monetary easing in Japan reinforces gold’s role as a store of value in a world of looser policy, as does the threat of competitive devaluation between major currencies,” Edel Tully, a London-based analyst at UBS AG, said in a report. “Consolidation, after these recent moves, would not be a bad thing, particularly for the white metals, whose price action of late has been less orderly than that of gold.”

Silver for immediate delivery in London rose as much as 1.4 percent to $22.2625 an ounce, the highest level since September 1980, and was last at $22.2038. The metal, used to create the first telegraph messages, reached an all-time high of $50.35 an ounce in New York in 1980, a year after the Hunt brothers tried to corner the market.

Gold added 5.3 percent in the third quarter, compared with a 17 percent advance for silver and an 8.1 percent increase for platinum. Palladium advanced 28 percent.

Platinum added 0.7 percent to $1,681 an ounce. The metal reached $1,685.25 on Oct. 1, the highest level since May 18. Palladium gained 0.8 percent to $566 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Carpenter at ccarpenter2@bloomberg.net.