Bloomberg News

Gold Gain Cuts Weekly Drop as Stocks Fall Before Bernanke Speech

August 26, 2011

Aug. 26 (Bloomberg) -- Gold gained in New York as falling equities and the metal’s biggest weekly drop in more than three months spurred investor demand before a speech by Federal Reserve Chairman Ben S. Bernanke.

Gold futures slumped as much as 11 percent in the three days through yesterday after touching a record $1,917.90 an ounce on Aug. 23. European equities fell and the dollar weakened versus most major currencies as traders waited to see whether Bernanke will signal further steps to support the economy when he speaks at 10 a.m. New York time. He’s said the central bank will keep borrowing costs near zero at least through mid-2013.

“It’s going to be about what Bernanke says or doesn’t say,” Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said by phone today. Lower equities “are providing support for gold as a safe haven. There is, of course, some bargain-hunting” after this week’s drop, he said.

Gold for December delivery gained $26.30, or 1.5 percent, to $1,789.50 an ounce by 8:06 a.m. on the Comex in New York. Prices are down 3.4 percent this week, the most since May. Immediate-delivery gold was 0.7 percent higher at $1,787.30 in London.

Bullion is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. Before this week, gold climbed for seven consecutive weeks, the longest run of gains since April 2007.

Weekly Survey

Thirteen of 26 traders, investors and analysts surveyed by Bloomberg said gold will rise next week. Eight predicted a drop and five were neutral.

Gold futures tumbled 5.6 percent on Aug. 24, the most since March 2008, as reports on durable-goods orders and home prices beat analyst estimates and equities climbed, prompting CME Group Inc. to raise margins on futures contracts for a second time this month. The 10-day historical volatility for gold futures this week jumped to about 41 percent, the highest level since March 2009, data compiled by Bloomberg show.

Investors will look for indications of whether the central bank will embark on further stimulus when Bernanke speaks in Jackson Hole, Wyoming. He used last year’s speech to say the Fed would “do all that it can” to spur growth. The Fed bought $600 billion in Treasuries from November through June.

Stimulus Measures

“Bernanke probably will hint that he is ready to use further stimulus if the economy deteriorates,” Pu Yonghao, chief investment strategist at UBS Wealth Management, told Bloomberg Television. “People are concerned the probability of recession has increased. Gold is a kind of insurance, to insure against the potential quantitative easing.”

UBS AG’s physical gold sales to India yesterday were more than twice the daily average and are set for the best week since May, Edel Tully, a London-based analyst at the bank, wrote in a report. “We expect a stronger buying response today,” she wrote.

Exchange-traded-product holdings were little changed yesterday after falling the previous four days. Assets declined 0.3 metric ton to 2,154.4 tons, data compiled by Bloomberg show. Holdings reached a record 2,216.8 tons on Aug. 8.

Silver for December delivery in New York rose 0.9 percent to $41.15 an ounce. It dropped 3.1 percent this week and is up 33 percent this year.

Platinum for October delivery was up 0.2 percent at $1,825.90 an ounce, cutting its weekly loss to 2.6 percent. Palladium for December delivery slipped 0.3 percent to $750.65 an ounce. Prices are up 0.2 percent this week.

--Editors: Dan Weeks, Nicholas Larkin.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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