Gold, Near Record, May Advance on Concern About European Debts, Inflation

Gold, little changed near a record in New York, may climb as concerns about European debt and rising inflation spur demand for an alternative investment.

The European Central Bank lifted interest rates for the first time in almost three years to quell inflation even as Portugal said yesterday it will seek a bailout. Gold futures yesterday reached a record $1,463.70 an ounce. Prices have climbed as fighting in Libya, Japan’s nuclear crisis and concerns about European debt boosted demand for the metal as a protector of wealth.

“Inflation uncertainty and geopolitical risks are still high,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Sovereign bankruptcy in the European periphery is also supporting gold prices.”

Gold futures for June delivery rose $1.50, or 0.1 percent, to $1,460 an ounce by 8:02 a.m. on the Comex in New York. The metal for immediate delivery in London was 0.1 percent lower at $1,458.30.

Bullion fell to $1,456.50 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,461.50 at yesterday’s afternoon fixing.

Portugal will seek a bailout from the European Union after the nation’s political crisis pushed borrowing costs to record levels and forced it to become the third country in the euro region in need of a rescue. Portugal is aiming for a package that may be worth as much as 75 billion euros ($107 billion), two European officials with knowledge of the situation said.

The North Atlantic Treaty Organization increased the number of warplanes over Libya. The U.S. and Italy discussed how coalition countries can “do more to help the opposition make very fast progress” against Muammar Qaddafi, U.S. Secretary of State Hillary Clinton said after meeting her Italian counterpart Franco Frattini.

Interest Rates

The ECB today raised the benchmark interest rate to 1.25 percent from a record low of 1 percent.China this week raised rates for the fourth time since October to combat rising consumer prices and Federal Reserve Chairman Ben Bernanke this week said inflation must be watched “extremely closely.”

Rising interest rates increase the opportunity cost of holding non-interest-bearing commodities such as bullion.

The ECB rate increase “should be priced in to a large extent,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report to clients. “The effect on precious metals should thus be limited.”

Gold will average $1,460 an ounce this year, up from a previous forecast of $1,426, Standard Chartered Plc said today in a report. Prices will average $1,650 next year, it said.

Silver for May delivery in New York rose 0.4 percent to $39.53 an ounce after yesterday reaching $39.785, the highest level since January 1980. That year, futures reached a record $50.35.

Palladium for June delivery was little changed at $784.30 an ounce. Platinum for July delivery fell 0.4 percent to $1,792.50 an ounce.

(Source: http://www.bloomberg.com/news/2011-04-06/gold-climbs-to-record-in-flight-to-safety-silver-reaches-31-year-peak.html)