American Bullion -- Gold Surges to Four-Month High on Demand for Currency Hedge

Friday, April 09, 2010 at 12:00pm

By Pham-Duy Nguyen

April 9 (Bloomberg) -- Gold climbed to the highest price since December as investors sought an alternative to holding currencies.

The dollar fell as much as 0.8 percent against a basket of six major currencies. The euro headed for a weekly loss against the greenback on mounting speculation that Greece will default on its debt. Gold priced in euros and Swiss francs reached all- time highs. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, climbed to a record.

“When people are uncertain about their domestic currencies, they buy precious metals as a safe haven,” said Stephen Platt, an Archer Financial Services commodity analyst in Chicago. “Gold’s gains reflect a global flow out of paper assets. This is a major force in the gold market.”

Gold futures for June delivery rose $9, or 0.8 percent, to $1,161.90 an ounce on the Comex in New York. Earlier, the most- active contract touched $1,165.80, the highest price since Dec. 8. Gold rallied 3.2 percent this week, the most since Feb. 12.

Holdings in the SPDR Gold Trust rose 9.7 metric tons to 1,140.43 tons yesterday, according to the company’s Web site. The fund’s net asset value rose to $42.09 billion.

Before today, concerns over Greece’s widening budget deficits pulled the euro down 6.7 percent against the dollar this year. Gold reached a record 865.024 euros today and climbed to an all-time high of 1,243.378 Swiss francs.

“Gold is becoming the global go-to currency,” said Matt Zeman, a trader at LaSalle Futures Group in Chicago. “People have been losing faith in fiat currencies as governments around the world dig themselves into huge deficits. Hard assets are going to benefit.”

Easy Money

Gold rose 24 percent in 2009 as the Federal Reserve kept interest rates close to zero to revive the U.S. economy. The European Central Bank’s benchmark rate has remained at 1 percent since May, helping to push the euro up 2.5 percent against the dollar last year. Gold reached a record $1,227.50 on Dec. 3.

Gold has decoupled from the dollar since at least the end of March, according to analysts at Deutsche Bank AG. Usually, gold falls when the dollar gains against the European currency.

If the correlation re-establishes itself before July, either the dollar must continue to decline or investment into bullion-backed funds must pick up in order to avoid erosion in gold prices, Deutsche Bank said.

Dollar Driver

A weaker dollar today also helped drive gold higher, said Zeman of LaSalle.

“People are putting on the dollar-hedge trade,” Zeman said. “You’ve got a lot of risk appetite in these markets.”

Also in New York, silver futures for May delivery rose 22.4 cents, or 1.2 percent, to $18.351 an ounce on the Comex. The metal advanced 2.6 percent this week, after climbing 5.8 percent last week.

Platinum futures for July delivery gained $10.30, or 0.6 percent, to $1,727.40 an ounce on the New York Mercantile Exchange, up 3.1 percent for the week. June palladium futures jumped $10.10, or 2 percent, to $513.60 an ounce on the Nymex, capping a 4.5 percent advance this week.