Gold climbs as jitters over euro zone debt intensify

Thursday, 11 November 2010 22:46 -     - {{hitsCtrl.values.hits}}

London (Reuters): Gold rose back toward $1,415 an ounce in Europe on Thursday as concerns over sovereign debt in some peripheral euro zone economies intensified, boosting interest in the precious metal as a safe store of value.

The markets are nervous over a meeting of Group of 20 leaders this week, at which currency imbalances may be addressed. Worries over the stability of the foreign exchange markets has been a key support for gold this year.

Spot gold was at $1,414.20 an ounce at 1107 GMT (6:07 a.m. ET), less than $10 an ounce below the record $1,424.10 an ounce it hit earlier this week, versus $1,402.70 late on Wednesday. U.S. gold futures for December delivery rose $14.80 to $1,414.10.

Gold priced in euros also rose, reaching its highest since mid-June at 1,029.59 euros an ounce.

“The dollar is a tad firmer, but so are commodities in general,” said Saxo Bank general manager Ole Hansen. “We have not seen anything on the currency front yet that could rattle people’s belief in higher commodity prices.”

“(There is) nervousness about the outcome of the G20 and the European debt situation,” he added. “As we edge closer to the time of year where position reductions begins to kick in, I see the sector supported as long we do not see sudden strength in the dollar.”

The dollar rose against the euro on Thursday, with tensions in the euro zone periphery expected to trigger further selling of the single currency as investors fretted over the outlook for the Irish and Portuguese deficits.

A stronger dollar usually weighs on gold, but risk aversion kept the metal supported. The cost of insuring Spanish, Portuguese and Irish debt against default hit record highs as market jitters over euro-peripheral economies rose.

“Worries over euro zone troubles were still mounting amid fears that Ireland will have to resort to a Greek-style bailout should the situation worsen,” said VTB Capital analyst Andrey Kryuchenkov in a note.

“A stronger dollar is still capping the upside in gold, but should risk sentiment turn outright sour, gold would decouple from the rest of the precious complex with investors running for bullion’s safety amid rising currency and sovereign risks.”

In Asia, traditionally a key region for gold consumption, gold scrap selling increased after spot prices hit record highs, though it fell short of meeting burgeoning demand.

“The collection of scrap has definitely increased compared to last week, but not enough to fulfill fresh demand in the market,” said a dealer with Mumbai’s Jugraj Kantilal & Co.

Among other precious metals, silver rose to $27.70 an ounce against $27.20. Holdings of the iShares Silver Trust, the world’s largest silver exchange-traded fund, rose 3.4 percent to a record 10,718.82 tonnes by Nov 10, it said.

“At 40.6 million ounces over the past five business days, global ETF investment enjoyed its largest absolute one-week increase since the first week of the first-ever contact (iShares) in April 2006,” said UBS analyst Edel Tully in a note.

“The increase in ETF holdings is the most visible sign of current investor support for silver.”

The ratio of gold to silver -- the number of ounces of silver needed to buy an ounce of gold -- slipped back toward the 2-1/2 year low near 50 it reached earlier this week.

Elsewhere platinum was at $1,767.24 an ounce against $1,735.99, while palladium was at $715.22 versus $699.

Palladium was the biggest riser among other precious metals on Thursday, up 2.3 percent, but still off the 9-1/2 year high at $740.72 an ounce it hit on Tuesday.