Gold Advances for Second Day as European Debt Risk Drives Haven Demand

By Glenys Sim and Phoebe Sedgman - Sep 14, 2011 11:18 AM GMT+0700

Gold advanced for a second day as concern about Europe’s sovereign-debt crisis spurred demand for the metal as a haven investment.

Immediate-delivery gold rose as much as 0.6 percent to $1,844.98 an ounce and traded at $1,836.85 at 12:04 p.m. in Singapore. The metal rebounded yesterday from a two-day drop as investors sought safe assets. December-delivery bullion gained as much as 1 percent to $1,848.20 an ounce in New York before trading at $1,840.30.

“The one monetary asset that doesn’t have a central bank working against it is gold,” Robert Sinche, global head of currency strategy at RBS Securities Inc., said in a Bloomberg Television interview. “With liquidity still being abundant in the global environment we do think gold probably still has some good risk-reward characteristics even at these levels.”

Greek Prime Minister George Papandreou will hold a conference call with German Chancellor Angela Merkel and French President Nicolas Sarkozy today amid increasing speculation that Greece will default. Merkel has said she won’t let Greece go into “uncontrolled insolvency”.

Chinese Premier Wen Jiabao said at the World Economic Forum today that China is willing to help Europe and warned that the most important issue is to prevent the crisis from spreading. Greece’s perceived chance of default in the next five years has soared to 98 percent, based on a standard pricing model of credit-default swaps.

$2,000 Gold

Gold is expected to hit highs of “well above $2,000 in the coming months” on lower bond yields, expectations of poor risky asset returns and volatility, growing European sovereign debt concerns and general risk aversion owing to uncertain global economic conditions,” TD Securities analysts including Bart Melek wrote in a report.

The firm expects gold to average $1,975 an ounce in 2012 and $1,750 an ounce in 2013, compared with previous estimates of $1,850 an ounce for 2012 and $1,650 an ounce for 2013. Cash gold reached a record $1,921.15 an ounce on Sept. 6.

“There’s increasing uncertainty in the European market,” Natalie Robertson, a commodity analyst at Australia & New Zealand Banking Group Ltd., said by phone from Melbourne. “Markets are going to continue to react in a risk-off manner and that will be supportive for gold.”

Cash silver fell 0.2 percent to $40.9075 an ounce. Spot platinum was little changed at $1,815 an ounce, while palladium dropped 0.2 percent to $724.50 an ounce.

To contact the reporters for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net