Bloomberg News

Gold May Fall for Third Day as Rescue-Fund Report Limits Demand

October 19, 2011

Oct. 19 (Bloomberg) -- Gold may fall for a third day in New York as reports that France and Germany are nearing an accord to boost the size of Europe’s rescue fund curbs demand for the metal as a protection of wealth.

The euro gained against the dollar as the Guardian newspaper reported the two nations support increasing the size of the 440 billion-euro ($607 billion) European Financial Stability Facility to 2 trillion euros ahead of a summit this weekend. European equities advanced.

“The euro is up on the back of that, and it could be responsible for this move,” Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva, said today by phone, referring to the rescue-fund report. Still, “I don’t think that safe-haven demand is gone,” and physical purchases will support prices, he said.

Gold for December delivery fell 0.1 percent to $1,650.50 an ounce by 7:54 a.m. on the Comex in New York. Immediate-delivery gold was 0.5 percent lower at $1,649.60 in London.

Bullion is in the 11th year of a bull market and futures reached a record $1,923.70 an ounce on Sept. 6 as investors sought to diversify away from equities and some currencies. The metal is up 16 percent this year.

EU Meeting

German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that the firepower of the European Financial Stability Facility may be increased to a maximum of 1 trillion euros through an insurance model, Financial Times Deutschland reported, without saying where it obtained the information.

Germany and France also support recapitalization of European banks, the Guardian reported. A spokesman for German Chancellor Angela Merkel declined to comment. Merkel said yesterday the European Union summit will mark an important step, though not the final one, in solving the region’s debt crisis.

Spain’s credit rating was cut yesterday for the third time in 13 months by Moody’s Investors Service as the crisis threatens to engulf the nation, which has the highest jobless rate in the 27-nation EU.

“The fundamentals that support gold’s status as a safe haven have not changed,” Julian Jessop, chief global economist at Capital Economics Ltd., wrote in a report. “Gold’s value does not depend on the creditworthiness of any government or financial institution. We continue to expect the price of gold to top $2,000 as sovereign-debt worries continue to build.”

Silver for December delivery fell 0.2 percent to $31.775 an ounce. Palladium for December delivery was down 0.2 percent at $618.50 an ounce. Platinum for January delivery declined 0.6 percent to $1,530.90 an ounce.

--Editors: Sharon Lindores, Nicholas Larkin

To contact the reporters for 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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