Gold Rebounds as Two-Day Slump Lures Investors Amid Economic Uncertainty

By Glenys Sim - Sep 13, 2011 10:58 AM GMT+0700

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Sept. 13 (Bloomberg) -- Nader Naeimi, a Sydney-based strategist at AMP Capital Investors Ltd., talks about gold prices and global financial markets. Naeimi, speaking with John Dawson on Bloomberg Television's "Asia Edge," also discusses the European debt crisis and Australia's business confidence. (Source: Bloomberg)

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Sept. 13 (Bloomberg) -- Vasu Menon, vice president of wealth management at Oversea-Chinese Banking Corp., talks about China's economy and financial markets, gold prices, and the U.S. dollar. Menon, speaking with Rishaad Salamat on Bloomberg Television's "On the Move Asia," also discusses Federal Reserve monetary policy. (Source: Bloomberg)

Gold rebounded as a two-day slump made the precious metal attractive to investors looking to safeguard their wealth against financial turmoil and the risk of a deepening economic slowdown.

Gold for immediate delivery advanced as much as 1 percent to $1,832.75 an ounce and traded at $1,831.35 an ounce by 11:56 a.m. in Singapore. The metal, which reached a record $1,921.15 on Sept. 6, tumbled 2.9 percent in the past two days as investors sold the metal to cover losses in equities and the dollar touched a six-month high against a six-currency basket.

“The weakness in gold prices, we see it as an opportunity for investors to buy,” Vasu Menon, vice-president of wealth management at Oversea-Chinese Banking Corp., said in a Bloomberg Television interview. “Investment demand is on the rise, central banks are diversifying their reserves away from the U.S. dollar and we see a strong case for gold to head higher.”

December-delivery futures in New York also advanced, climbing as much as 1.3 percent to $1,837.20 an ounce before trading at $1,834.20. The metal snapped a two-day gain yesterday as concern about Europe’s debt crisis eased after a report that China may invest in Italy, helping the Standard & Poor’s 500 Index erase a 1.6 percent drop to end the day 0.7 percent higher.

The Financial Times reported that Italian officials are trying to convince China to purchase its bonds, without identifying its sources. An Italian government official, who declined to be identified, told Bloomberg News that Italian officials have held talks with Chinese counterparts about potential investments in the country.

Investment Demand

“If the U.S. dollar continues to strengthen because of what’s happening out of Europe, it could weigh on gold prices and gold could head below $1,800 an ounce,” said Menon. “On that kind of dip it presents an even more attractive buying opportunity because the long term prospects of gold are very promising.”

Gold is in the 11th year of a bull run, the longest rally since at least 1920 in London, as investors seek to diversify away from equities and some currencies, as well as hedge against inflation. The metal is up 29 percent this year, outperforming global stocks, commodities and Treasuries.

Central-bank and government-institution buying of bullion rose almost fivefold to 69.4 metric tons in the second quarter of this year, taking the first-half total to 192.3 tons, according to the World Gold Council. In 2010, central banks became net buyers for the first time in two decades and will remain net buyers this year, it said.

“While gold is exposed to a near-term consolidation after making fresh record highs recently, we recommend buying gold on dips as the ongoing debt/deficit crisis is likely to result in an extended period of super lax monetary conditions in the U.S. and Europe,” Societe Generale SA analysts led by Michael Haigh wrote in a report. “Gold is likely to make fresh all-time record highs before year-end.”

Cash silver gained as much as 1.7 percent to $40.9575 an ounce, also rebounding from a two-day drop, and traded at $40.8925. Spot platinum rose 0.7 percent to $1,818.95 an ounce, trading below gold for an eighth time on an intraday basis. Palladium gained 1.2 percent to $715.75 an ounce.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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