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Tuesday, June 8, 2010

Gold Advances to a Record in New York, London on Haven Demand.

By Nicholas Larkin

June 8, 2010 (Bloomberg) -- Gold rose to a record in New York and London as investors sought an alternative to currencies amid mounting concern over Europe’s debt crisis.

Bullion also hit highs in euros, sterling and Swiss francs after the region’s common currency yesterday slipped to its lowest level in more than four years against the dollar amid speculation that debt-cutting measures by European nations will slow growth. European equities fell and Fitch Ratings said the U.K. must deepen budget cuts to protect its top credit rating.

“It shows low confidence in the euro zone,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “There’s no confidence in euros, dollars and no confidence in other currencies. The only solution is to be on the safer side, which is gold.”

Gold, up 14 percent this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed other main precious and industrial metals as global equities slipped. Holdings in exchange-traded funds backed by gold reached records the past month, while coin sales from mints accelerated.

Gold futures for delivery in August gained as much as $13.70, or 1.1 percent, to $1,254.50 an ounce and traded at $1,246.60 at 8:18 a.m. on the Comex in New York. That surpassed the previous all-time high of $1,249.70 set May 14. Gold for immediate delivery in London reached $1,252.11 and was last up 0.4 percent at $1,244.57 an ounce.

‘Path Leads North’

Gold advanced this year as investors sought to safeguard their wealth against the crisis in Greece and other European countries struggling to repay debt. The metal reached a record 1,051.273 euros, 869.621 British pounds and 1,451.157 Swiss francs today.

“Gold just wants to follow one path and that path leads north,” said Edel Tully, an analyst at UBS AG in London. “Right now it’s too difficult to stand in front of a moving train.”

The metal rose to $1,248 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,215 at yesterday’s afternoon fixing. Prices may advance to $1,300 by the end of the month, MKS’s Sin said.

Britain is facing a fiscal challenge and needs to accelerate plans to reduce its budget deficit, Fitch Ratings said today. Interest payments on U.K. debt, rated AAA at Fitch, may reach a “staggering” 70 billion pounds ($101 billion) in five years, from 31 billion pounds in the past fiscal year, Prime Minister David Cameron said yesterday.

U.S. Recovery

“The Fitch announcement may have generated some safe-haven buying for gold,” Daniel Major, an analyst at Royal Bank of Scotland Group Plc, said today by phone.

The euro steadied against the dollar as Federal Reserve Chairman Ben S. Bernanke said Europe’s leaders are committed to avoiding a default and their bailout plan covers the obligations of Greece, Portugal and Spain “for a number of years.” The U.S. recovery is moving at a “moderate” pace, Bernanke said.

The euro slid 17 percent against the greenback this year, while the MSCI World Index of shares is down 11 percent. Returns on benchmark U.S. Treasuries have gained 4.6 percent this year.

“The gold price continues to be supported by safe-haven inflows, linked to Europe’s debt crisis and uncertainty about returns from alternative investment assets,” David Moore, a commodity strategist at Commonwealth Bank of Australia, wrote in an e-mail today.

The metal may trade at $1,050 to $1,300 an ounce for the rest of this year and may climb as high as $2,000 if the debt crisis spreads beyond Europe, possibly to the U.S., GFMS Chief Executive Officer Paul Walker said in an interview.

Stimulate Economies

Central banks and governments maintained low borrowing costs and spent trillions of dollars to stimulate economies after the worst financial crisis since the Great Depression. The U.S. estimates budget deficits will reach a record $1.6 trillion in the year ending Sept. 30.

Holdings in the SPDR Gold Trust, the biggest ETF backed by bullion, gained 13 percent this year. The fund’s assets were unchanged at 1,286.36 metric tons yesterday, its website showed. They reached a record 1,289.84 tons on June 3.

“Given current prices, it’s also reasonable to expect scrap supply to pick up pace,” UBS’s Tully said. “When gold was trading at these levels back in May, anecdotal evidence suggested that scrap flow had dramatically accelerated.”

Platinum for July delivery in New York added 0.2 percent to $1,520.50 an ounce. Palladium for September delivery rose 0.7 percent to $433.50 an ounce. Silver for July delivery was 0.8 percent higher at $18.315 an ounce.

--With assistance from Chanyaporn Chanjaroen in London and Kyoungwha Kim and Glenys Sim in Singapore. Editors: Stuart Wallace, John Deane

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

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