Time to buy gold

Gold firm on currency fears, rising demand FRANK TANG AND PAUL LAUENER

Reuters

March 13, 2009 at 4:02 PM EDT

NEW YORK/LONDON — Gold firmed Friday a combination of weaker dollar, technical buying and fears that a Swiss example would lead to a series of currency devaluations, boosting investor demand for the yellow metal.

News that the Swiss National Bank had moved to rein in the franc's strength to boost the economy and news of fresh inflows into exchange-traded funds (ETFs) fuelled buying of the precious metal, Calyon metals analyst Robin Bhar said.

“Those two pieces of information should allow gold to... maybe now test the resistance around $930/$940,” Mr. Bhar said.

Spot gold was at $927.55 (U.S.) an ounce at 2:10 p.m. EDT , up 0.1 per cent from its last quote $926.65 late in New York on Thursday.

U.S. gold futures for April delivery settled up $6.10 at $930.10 an ounce on the COMEX division of the New York Mercantile Exchange.

U.S. stocks rose after preliminary March data showed an unexpected improvement in U.S. consumer confidence, pressuring gold from its earlier highs.

The precious metal rallied on Thursday after the SNB sold Swiss francs against the euro, a move that was seen opening the door to the use of currencies as a policy tool.

If other central banks follow the SNB's lead, paper currencies could suffer, boosting the appeal of gold as an alternative asset.

Interest in gold also has been boosted by news that holdings of the largest gold ETF, New York's SPDR Gold Trust, rose 3.36 tonnes on Thursday to a record 1,041.53 tonnes, overtaking the SNB as the world's sixth-largest holder of gold.

Buying of physical gold to back ETFs has represented a major part of demand in recent months, with a sharp rise in ETF holdings at the beginning of the year a key factor in gold's price rally.

Mounting concerns about long-term inflation also helped gold, following massive economy stimulus plans by governments.

“Gold can go over $1,000 when we start getting inflation, which is going to be inevitable here,” said Zachary Oxman, senior trader at Wisdom Financial.

HEDGE AGAINST FALLING DOLLAR

The dollar weakened to a 2 1/2 week low against the euro.

Although gold and the dollar are moving in the same direction due to risk aversion, a weaker dollar usually boosts gold, which investors buy as a hedge.

China's central bank said in its annual international financial markets report that gold could be set to climb to record highs in the context of the financial crisis.

Among other precious metals, spot silver was at $13.16 an ounce, up 1.7 per cent from its Thursday finish of $12.94 late on Thursday.

Spot platinum was at $1,054.00 an ounce, up 0.4 per cent from its previous close of $1,049.50, while spot palladium was firmer at $197.50 an ounce, up 1.3 per cent from its late Thursday New York quote $195.

Both metals, which have mainly industrial uses, have suffered from the economic slowdown, and especially a fall in demand for cars.