Gold Gains in London as Greece Concern and Dollar Boost Demand

By Nicholas Larkin and Glenys Sim

Jan. 18 (Bloomberg) -- Gold rose in London as concern about the soundness of Greece’s public finances and a weaker dollar boosted the metal’s appeal as a haven asset. Palladium and platinum climbed to the highest prices in at least 17 months.

European finance ministers meet later today to discuss Greece’s budget deficit. The country’s worsening finances last month prompted credit-rating companies to cut its creditworthiness. The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.3 percent. Gold typically move inversely to the dollar.

“The market is very concerned about the situation in Greece,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “Gold is having speculative interest, rather than real physical demand.”

Gold for immediate delivery added $5.47, or 0.5 percent, to $1,136.40 an ounce at 9:57 a.m. local time. Bullion for February delivery gained 0.5 percent to $1,136.30 in electronic trading on the New York Mercantile Exchange’s Comex division.

Comex trading floors in New York and Chicago are closed today for the Martin Luther King Jr. holiday.

Greece on Jan. 15 presented the European Commission with a three-year budget plan that includes deficit-reduction measures for this year to bring down Europe’s biggest budget shortfall. The country won’t default on its debt or abandon Europe’s single currency, Luxembourg’s Jean-Claude Juncker, who heads the group of euro-area finance ministers, said that day.

Interest Rates

The dollar index has slipped 0.9 percent this year after a 4.2 percent drop in 2009. The currency slumped last year as the Federal Reserve held interest rates near zero to revive the U.S. economy and investors favored higher-yielding currencies and assets on expectations of a recovery from the world recession.

“Silver and gold are currently mainly driven by investment demand, and thus react more sensitively to changes in the dollar,” Stefan Graber, an analyst at Credit Suisse Group AG, wrote in a note today.

Bullion held by the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, fell for a second day, slipping 0.91 metric ton to 1,112.84 tons on Jan. 15, according to the company’s Web site.

Palladium rose for a fourth day, heading for the longest rally since Nov. 16, 2009. The metal for immediate delivery climbed as much as 1.1 percent to $460.02 an ounce, the highest price since July 2008, and was last at $458.50. Platinum added as much as 1.8 percent to a 17-month high of $1,628.50 an ounce and last traded at $1,624.75. Both metals are used in catalytic converters that curb pollution from vehicles.

Auto Industry

“Platinum and palladium are more closely linked to the business cycle than gold and silver, due to their heavy use in the car industry,” Graber said. “Given that we expect a continued recovery in global economic activity, we still think that platinum and palladium are likely to continue outperforming gold and silver over coming months.”

Palladium held in ETF Securities Ltd.’s exchange-traded commodities products rose 2.6 percent to a record 679,938 ounces on Jan. 15, according to the company’s Web site. Silver holdings added 226 ounces to a record 24.334 million ounces.

Silver for immediate delivery in London gained 1.2 percent to $18.625 an ounce.

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net