Gold Jumps in London as Investors Seek Haven From Weaker Stocks

By Marianne Stigset

Sept. 15 (Bloomberg) -- Gold jumped as much as 2.6 percent in London as Lehman Brothers Holding Inc.'s bankruptcy filing, the biggest in history, pushed stocks lower, sending investors scrambling for a safe haven.

U.S. equity-index futures and stocks in Asia and Europe fell after Lehman's filing and Bank of America Corp. agreed to acquire Merrill Lynch & Co., the world's biggest brokerage firm, for $50 billion in an emergency deal. American International Group Inc., the largest U.S. insurer by assets, fell by almost half in early trading as the company failed to present a plan to raise capital and stave off credit downgrades.

``People are talking about the greatest, most radical reshaping in Wall Street history,'' said Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. ``There was hope the worst was over, but it's spreading from the financial sector to the rest of the economy. We're extremely bullish on gold.''

Gold for immediate delivery climbed as much as $20.20 to $785.70 an ounce and was at $774.55 an ounce as of 2:06 p.m. in London.

``The decline in the oil price and the recovery of the dollar has capped gold's gains,'' O'Byrne added. ``We expect prices may go up 4 to 5 percent over the week.''

Crude oil fell below $95 a barrel to the lowest in six months as refineries along the Gulf of Mexico coast escaped major damage from Hurricane Ike. Lower energy costs diminish investor demand for gold as a hedge against inflation.

The dollar dropped the most in a decade against the yen and fell versus the euro, pound and Swiss franc, before recovering.

`Need for Cash'

Gold futures for December climbed as much as $25, or 3.3 percent, to $789.50 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange, and last traded at $776.30 an ounce. The metal declined 4.8 percent last week, the second straight weekly decline.

``Overall the sentiment has been quite bearish'' for gold, James Moore, an analyst at TheBullionDesk.com, said by telephone from London. Investors have been liquidating positions as ``the need for cash is still quite present. This might help stabilize gold.''

Gold rose to $779.25 an ounce in the morning ``fixing'' in London, used by some mining companies to sell production, from $757.50 at the previous afternoon fixing.

The London Bullion Market Association said it expects no impact from the bankruptcy of Lehman or the sale of Merrill Lynch, both of which are members, the LBMA's Chief Executive Officer Stewart Murray said. The LBMA, representing the wholesale gold and silver market in London, has 57 ordinary members this year, up from 55 last year and 52 in 2006.

Market Impact

``They're ordinary members, they're not market makers, they're not clearers,'' Murray said by phone from London today. The two banks' weight within the London bullion market is ``quite small given the many number of ordinary members.''

The London Metal Exchange, the world's largest copper bourse, the Liffe commodities exchange, and Intercontinental Exchange Inc.'s ICE Futures Europe all suspended Lehman from trading today. LCH.Clearnet Group Ltd., which clears trades, declared Lehman's European subsidiary a defaulter.

Fifteen of 28 traders, investors and analysts surveyed by Bloomberg from Mumbai to Chicago on Sept. 11 and Sept. 12 advised buying gold. Nine said to sell, and four were neutral.

``The next few days are going to be very much dollar bearish and bullish precious metals,'' Narayan Gopalakrishnan, a Geneva-based trader at MKS Finance, said by telephone. ``We can expect a rally. We could easily hit $800 an ounce.''

Long Positions

Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended Sep. 9, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 82,655 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report from Sept. 12.

``In the short-term, I see gold trading well below $800 an ounce,'' Bayram Dincer, a commodity research analyst at Dresdner Bank AG in Zurich, said by phone.

Inflation is perceived as diminishing, investors are getting increasingly averse even toward bullion and the global economic slowdown will reduce physical demand for gold, he said. Dincer added he's considering revising his forecast for gold to average $700 an ounce next year, down from $800.

Among other metals for immediate delivery, silver dropped 8.5 cents, or 0.8 percent, to $10.795 an ounce and palladium fell $11.75, or 4.8 percent, to $234.75 an ounce.

Platinum for immediate delivery slipped $3.25, or 2.8 percent, to $1,176.75 an ounce.

Platinum rose to $1,200 an ounce in the morning ''fixing'' in London from $1,187 at the previous afternoon fixing. Palladium gained to $244.00 an ounce, from $241.00.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net