Bloomberg News

Gold May Advance as Slowdown, Greece Debt Turmoil Spur Demand

June 02, 2011

June 2 (Bloomberg) -- Gold may advance for a second day to near a one-month high as data pointing to an economic slowdown and prolonged debt turmoil in Greece spurred demand for the metal as a store of value.

Immediate-delivery gold rose as much as 0.2 percent to $1,543.55 an ounce before trading at $1,540.65 at 2:04 p.m. in Singapore. The metal reached $1,550.20 an ounce yesterday, the highest level since May 3. Cash silver strengthened as much as 1.2 percent to $37.295 an ounce.

Manufacturing growth from China to the euro region and the U.S. slowed in May, adding to signs momentum is weakening in the global economy. The Institute for Supply Management’s factory index fell more than projected to 53.5 last month, the lowest level since September 2009, U.S. data showed yesterday.

“Investors bought the safe-haven asset” after signs of economic slowdown in the U.S., Mark Pervan, head of commodity research with ANZ Banking Group Ltd., wrote in a note today. Continued central-bank purchases of bullion also provided “additional support and positive sentiment for gold.”

Bullion is extending its 10-year winning streak as retail investors, pension funds and central bankers seek to protect wealth against Europe’s sovereign-debt crisis, weaker currencies and resurgent inflation.

Russia and Mexico in April added gold now valued at almost $1 billion to their reserves. Russia bought 13.72 metric tons in the month, raising holdings to 824.83 tons, according to data on the International Monetary Fund’s website. Mexico’s assets rose 5.93 tons to 106.14 tons, the data showed this week.

Default Risk

Greece’s risk of default was raised to 50 percent by Moody’s Investors Service as European officials rushed to put together the second bailout plan in two years to stave off renewed financial turmoil in the region.

Moody’s downgraded Greece to Caa1 from B1, putting it on a par with Cuba, according to a report published late yesterday. The move came after policy makers considered asking investors to reinvest in new Greek debt when existing bonds mature.

“Slowing growth and increased uncertainty over the outlook ahead may keep gold supported,” said Ong Yi Ling, a Singapore- based analyst with Phillip Futures Pte.

An ounce of gold bought 41.5687 ounces of silver today after the ratio jumped 4.8 percent yesterday, the most since May 16. The gold-to-silver ratio fell to as low as 31.7135 on April 28 and rebounded to as high as 44.3310 on May 16.

Spot palladium and platinum were little changed at $772.75 an ounce and $1,817.50 an ounce, respectively.

--Editors: Matthew Oakley, Jarrett Banks

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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