Investors seeking safe haven bet on gold

PETALING JAYA: Gold prices are on the way up again as concerns over debt levels in the United States and the eurozone prompt investors to move their funds to safe-haven assets.

Investors were also betting that rising agriculture commodity prices would mean higher food prices after the Standard & Poor's GSCI Spot Index, a measure of 24 commodities, rose for the third consecutive week.

Gold, also seen as a hedge against inflation and volatility, has seen gains since 2009 as an impasse over how to lower the US deficit continued.

Investor fears have also heightened amid concerns that deficit levels in eurozone members Italy and Spain could not be sustained in the long term.

A Bloomberg report said gold futures climbed for nine straight sessions to July 15, which is the longest rally since November 2009.

Analysts who spoke to StarBiz said prices would rise above the US$1,600 per ounce level in the near term due to inflation in China and the debt crises in the United States and the eurozone.

Singapore-based Phillip Futures Pte Ltd analyst Ong Yi Ling said gold was likely to rise to US$1,650 in the August to September period as demand was traditionally strong during that time.

She said that with Federal Reserve chairman Ben Bernanke not discounting another round of fiscal stimulus, this signalled to the markets that the recovery in the world's largest economy could still be a drag on global growth.

Ong added that demand for gold in China was high as both an investment and retail purchase. Investors like it as a store of value and hedge against inflation while rising incomes have allowed retail customers to buy the metal, according to Ong.

She, however, noted that price volatility would increase as prices rose.

Meanwhile, a Singapore-based gold trader attached to a bank said gold prices would likely rise to US$1,615 in the next one to two weeks before the market rebalanced from the price rise.

“Funds are flowing to gold from securities due to the volatility of the US and European markets but may return to the US market as second-quarter financial results may beat expectations,” he said.

According to Brad Durham, an EPFR managing director, there was fear in the markets of a potential downgrade of US debt and more negative news from the eurozone.

“It was a good, old-fashioned flight-to-safety trade,” he said in a Bloomberg report.

Data from the US Commodity Futures Trading Commission also showed hedge funds and other money managers lifted their net-long gold position by 25%, which is the biggest jump since the week ended Sept 8, 2009.