Gold jumps as investors seek safety

Prices rally on haven buying as headlines from Italy present the latest cause for concern.

By TheStreet Staff Nov 7, 2011 11:26AM

Image: Gold (© Anthony Bradshaw/Photographer)By Alix Steel, TheStreetTheStreet

 

Updated at 3:38 p.m. ET

 

Gold prices rallied Monday despite a firm U.S. dollar as stronger physical demand and haven buying kicked in.

 

Gold (-GC) for December delivery added $35 to settle at a session-high $1,791.10 an ounce at the Comex division of the New York Mercantile Exchange. The spot price was most recently rising $40.50, according to Kitco's gold index.

 

Silver (-SI) prices rose 74 cents to finish at $34.83 an ounce, while the U.S. dollar index was up slightly to $76.97.

 

In Europe, it's worrisome headlines from Italy. Now that Greece is shifting to an interim government, which should approve austerity measures and its next tranche of bailout money, investors are focusing on the drama unfolding in Italy.

 

With 10-year Italian bond yields soaring more than 6.6% -- a euro record high -- Prime Minister Berlusconi losing three party members in a week and the lower house preparing to vote on 2012 budget issues Tuesday -- which, if defeated, could trigger another confidence vote for Berlusconi -- investors are bracing for more market volatility and looking to gold for safety.

 

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James Moore, a research analyst at FastMarkets, says current haven buying could push prices "towards the $1,785-$1,800 area in the coming sessions." Gold was rising in all currencies with the strongest gains coming in the Swiss franc -- gold was up 2.68% -- on weekend reports that the Swiss National Bank was ready to take further steps to devalue its currency. The bank has previously pegged the franc to the euro at an exchange rate of 1.2 francs per euro but could raise the rate if need be.

 

Barclays Capital also reiterated its bullish stance on gold, writing, "We expect near-term buying interest . . . to underpin a move higher. A break above resistance at $1,775 would confirm our bullish view toward our target near $1,840" an ounce.

 

Rumors were also flying this weekend that Germany or other Eurozone central banks would be forced to sell gold in their reserves to help increase the firing power of the European Financial Stability Fund, or bailout fund. Germany is the second-largest holder of gold in the world, with 3,401 tons, and holds the third most gold as a percentage of its reserves, behind Greece and Portugal, according to the World Gold Council.

 

At current prices, all of Germany's gold would net $193 billion, well short of the trillion-plus dollars officials were hoping to expand the bailout fund to.

 

German officials reportedly said Monday that gold will "remain off limits" but that gold in the weaker EU nations could be used as collateral. "Gold's value as money and as a strategically important monetary asset is being slowly realized again," said Mark O'Byrne, the CEO of GoldCorp, a bullion dealer.

 

Gold mining stocks were bouncing back from Friday's losses, outpacing gains in broader equities Monday. Barrick Gold (ABX) was adding 2.2% at $52.53, while Newmont Mining (NEM) was up 3.1% to $71.50. Goldcorp (GG) was soaring 3.4% to $53.44, and Agnico-Eagle (AEM) was rallying 2.9% to $46.73.

3Comments
Nov 7, 2011 7:15PM
avatar

"well I tried buying stocks on Monday,

but I got so damn depressed,

that I set my sights on Precious,

and kept on dreamin' about you,

sister Golden Hair surprise! "

 

2K AU by years end? Hey! It could happen...

Nov 7, 2011 8:55PM
avatar
Everything is going precisely according to plan. 12-21-12 will be a glorious experience for all.
Nov 8, 2011 10:08AM
avatar
Maybe a "solid over" 1800 by weeks end?  HotMoney
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