Gold Climbs to Record as Debt Concern, Inflation Boost Investment Demand

Gold climbed to a record in New York and London for a fifth day, trading above $1,500 an ounce, as a weaker dollar and debt concerns boosted demand for an alternative investment. Silver rose to a 31-year high.

The dollar slid to the lowest level since August 2008 against a basket of six major currencies. Greek two- and 10-year government bond yields reached euro-era records amid speculation the nation won’t be able to avoid restructuring its debts. Fighting in Libya and Japan’s nuclear crisis helped gold, which typically moves inversely to the greenback, to gain 6.1 percent this year.

“The key element determining gold’s near-term direction right now is the U.S. dollar,” Edel Tully, an analyst at UBS AG in London, said today in a report to clients. “Sovereign debt concerns in U.S. and Europe along with inflation fears provide a good backdrop for gold.”

Gold futures for June delivery gained as much as $10.70, or 0.7 percent, to $1,509.60 an ounce and were at $1,507.60 by 8 a.m. on the Comex in New York. The metal for immediate delivery in London was 0.3 percent higher at $1,506.85 an ounce after reaching a record $1,509.

Bullion rose to $1,507 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,501 at yesterday’s afternoon fixing. Seventeen of 20 traders, investors and analysts surveyed by Bloomberg, or 85 percent, said bullion will rise next week. Two predicted lower prices and one was neutral.

Dollar Decline

The U.S. Dollar Index dropped as much as 0.9 percent before a report forecast to show U.S. house prices fell for a fourth month, underscoring prospects the Federal Reserve will maintain monetary stimulus. Central banks in Europe and Asia have raised interest rates to help combat accelerating consumer prices. The U.S. Treasury Department projects the government could reach its debt ceiling limit of $14.3 trillion as soon as mid-May and run out of options for avoiding default by early July.

The uprising in Libya, which began Feb. 17, has settled into a military stalemate near the central oil-port city of Brega. Italy, France and the U.K. said they are sending military advisers and trainers to help Libya’s disorganized and poorly equipped rebels, as French President Nicolas Sarkozy called for intensifying airstrikes against forces loyal to Muammar Qaddafi.

“Trading is expected to be thin today and next week as market participants will be out” because of holidays, UBS’s Tully said. “The lack of liquidity means that gold may not be as orderly as it has been this week and we could see large price swings.”

Silver Surges

Silver for May delivery in New York climbed as much as 4.1 percent to $46.27 an ounce, the highest price since January 1980, the year futures reached a record $50.35. The metal was last up 3.6 percent at $46.065 and has surged 49 percent in 2011. An ounce of gold bought as little as 32.58 ounces of silver in London today, the least since June 1983, data compiled by Bloomberg show.

Palladium for June delivery was up 1 percent at $766.50 an ounce. Platinum for July delivery gained 0.9 percent to $1,818.50 an ounce.

(Source: http://www.bloomberg.com/news/2011-04-21/gold-climbs-to-record-as-debt-concern-inflation-boost-investment-demand.html)