Bloomberg News

Gold May Extend Two-Week Advance on Slowing Growth, Europe Woes

June 03, 2011

June 3 (Bloomberg) -- Gold may climb, extending a two-week advance, as slowing global economic expansion and Europe’s debt crisis bolstered demand for precious metals as a store of value.

Immediate-delivery gold swung between a gain and a loss of 0.2 percent before trading at $1,531.80 an ounce at 1:46 p.m. in Singapore. The metal is little changed this week following last week’s 1.6 percent gain and 1.2 percent advance the previous week. Gold futures for August delivery was little changed at $1,532.70 an ounce.

Manufacturing in China, Europe and the U.S. slowed in May and a private report this week showing slower-than-forecast growth in jobs spurred concern that today’s Labor Department employment data will trail estimates. European Union and International Monetary Fund officials will today complete a review of Greece’s plan for 78 billion euros ($113 billion) in asset sales and austerity measures as they prepare the nation’s second bailout in little more than a year.

“Wobbly economic numbers are shoring up demand for gold as the dollar’s decline provides further support,” said Hwang Il Doo, a Seoul-based senior trader with KEB Futures Co. “Growing economic and geopolitical uncertainties will help cement bullish sentiment for gold.”

Concern about faster inflation, Europe’s debt crisis, a weakening dollar and fighting in Libya boosted gold futures to a record $1,577.57 last month. Prices are up 7.9 percent in 2011 after climbing the past 10 years, the longest run of gains in at least nine decades.

‘Global Liquidity’

Fifteen of 17 traders, investors and analysts surveyed by Bloomberg, or 88 percent, said bullion will rise next week. One predicted lower prices and one was neutral. The Fed plans to complete a $600 billion bond-purchase program, a second round of so-called quantitative easing, this month and keep interest rates “exceptionally low” for an “extended period.”

“Gold’s causal driver is global liquidity, of which only one-third is the Fed’s balance sheet,” analysts including Walter de Wet at Standard Bank Plc wrote in a note. “The other two-thirds of liquidity are driven by global government borrowing. We do not believe that government borrowing in nominal terms is about to decline.”

Cash silver fell 0.7 percent to $35.94 an ounce, taking this week’s decline to 5.4 percent. Spot palladium fell 0.6 percent to $767 an ounce, reducing this week’s gain to 0.8 percent, while platinum dropped 0.2 percent to $1,811.50 an ounce, a 0.6 percent rise this week.

--Editors: Jarrett Banks, Matthew Oakley

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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