Gold May Gain in London as Investors Seek Haven From Recession

By Stuart Wallace

Nov. 13 (Bloomberg) -- Gold, little changed today in London, may gain as investors seek to diversify their portfolios after equities plunged and Germany, Europe's largest economy, entered its worst recession in at least 12 years.

U.S. stocks fell for a third day yesterday and Asian and European equities extended the rout today. The German economy contracted 0.5 percent in the third quarter. The global hedge fund industry lost $100 billion of assets last month, Singapore- based data provider Eurekahedge Pte said.

``It's a massive deleveraging, there's blood on the streets everywhere,'' Peter McGuire, managing director at Commodity Warrants Australia, said in a Bloomberg Television interview from Sydney.

Gold for immediate delivery advanced $1.40, or 0.2 percent, to $713.70 an ounce as of 11:31 a.m. in London. Futures for December dropped $5.60, or 0.8 percent, to $712.70 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

Gold may climb above $1,000 in 2011 as mine output drops, mining costs rise and demand increases, Morgan Stanley said.

``Mining production actually peaked in 2001 and has since been declining,'' the bank's commodity analyst Hussein Allidina said in an interview in Singapore. ``When I look at the demand side, as income growth accelerates, the consumption of gold for jewelry purposes increases.''

South Africa, the world's biggest precious-metals producer, said mining production fell 3.5 percent in September from a year ago. Gold output declined 18 percent, while production of other metals fell 1.2 percent, Pretoria-based Statistics South Africa said today.

Gold Holdings

Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, shrank by 270 kilograms (8,681 troy ounces). The amount of gold now stands at 748.94 metric tons, according to figures posted on the company's Web site. The fund was at a record 770.64 tons Oct. 13, overtaking Japan as the world's seventh-largest gold holding.

Among other precious metals for immediate delivery, silver rose 0.5 cent, or 0.1 percent, to $9.355 an ounce. Platinum rose $1.50, or 0.2 percent, to $821.50 an ounce and palladium declined $4, or 1.9 percent, to $210.25 an ounce.

Tanaka Kikinzoku Kogyo K.K., Japan's largest bullion retailer, said its sales of platinum bars to local investors rose to a record in October as falling prices spurred demand.

Commodity derivatives held by companies in the over-the- counter market rose 56 percent during the first half to a record $13.2 trillion, according to the Bank for International Settlements. Derivatives expanded for all the commodities tracked except gold, the Basel, Switzerland-based bank said in a statement today.

To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net