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GOLD BREAKS $1,800 AS STOCKS TANK, VENEZUELA’S CHAVEZ CALLING BACK GOLD RESERVES

Dip buying of anything except gold, that is.

Bloomberg
August 18, 2011

Gold surged to records in New York and London as mounting concern about debt crises and slower economic growth spurred investors to sell equities and seek the perceived safety of bullion and Treasuries.

Stock indexes fell 2 percent or more across most major European markets and futures on the Standard & Poor’s 500 Index suggested the gauge would open down by about the same amount after Federal Reserve officials said the central bank should refrain from protecting equity investors. Morgan Stanley cut its forecast for global growth this year. Gold holdings in exchange- traded products backed by the metal gained the most in a week.

“The whole world is having huge problems,” said Afshin Nabavi, a senior vice president at MKS Finance SA, a bullion refiner in Geneva. “Until we have assurances from Europe and the U.S. that things are ‘back in order’ then this rally will continue.”

Gold is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify their holdings away from equities. Yields on 10- and two-year notes fell to record lows on Aug. 9, when the Fed took the unprecedented step of saying it will keep its target rate for overnight lending between banks at almost zero at least through mid-2013 to support the economy.

$1,824.20

Gold for December delivery rose as much as $30.40, or 1.7 percent, to $1,824.20 an ounce and traded at $1,820.50 by 9:21 a.m. on the Comex in New York. Immediate-delivery gold was 1.5 percent higher at $1,818 in London after reaching a record $1,821.40.

The metal is up 28 percent this year. The MSCI All-Country World Index fell 8.1 percent this year, the Standard & Poor’s GSCI Index of 24 commodities rose 2.3 percent, while Treasuries returned 7.2 percent in 2011, a Bank of America Merrill Lynch index showed. Bullion today climbed to the highest level since 1980 priced in yen.

Fed Chairman Ben S. Bernanke’s pledge last week to keep interest rates near zero was “inappropriate policy at an inappropriate time,” Charles Plosser, president of the Fed Bank of Philadelphia, said yesterday in a Bloomberg Radio interview. The cost of living in the U.S. climbed in July by the most in four months and more than economists had forecast, a report today showed.

Emerging-Market Inflation

“A developed world with slower growth, a large fiscal deficit and near zero rates over the next few years, inflationary pressures in emerging economies, and larger political and economic uncertainty bodes well for history’s oldest form of wealth,” Roxana Mohammadian-Molina, an analyst at Barclays Capital, said in a report.

Holdings of the metal in exchange-traded products rose 10.8 tons yesterday, the most since Aug. 8, to 2,198.7 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons last week as Standard & Poor’s cut its U.S. credit rating and concern about Europe’s debt crisis spurred demand for gold.

The rally has lifted the 14-day relative strength index for bullion futures to near 80. That’s above the level of 70 that some analysts who study technical charts view as a signal of a potential impending drop.

“We’re looking a little overbought,” said Andrew Gardner, an analyst at MF Global Australia Ltd. in Sydney, referring to the pace of recent gains. “But until the world’s problems –the big issues of the day being U.S. growth and European sovereign debt — are resolved, it’s unlikely to drop much.”

CHAVEZ: 365 Tons

Venezuelan President Hugo Chavez ordered the country’s central bank to repatriate $11 billion of gold reserves held in developed nations’ institutions. The country, which holds 211 tons of its 365 tons of gold reserves in U.S., European, Canadian and Swiss institutions, will progressively return the bars to the bank’s vault, Chavez said yesterday. He also said he’s preparing a decree to nationalize the gold industry to dedicate local production to building up reserves.

MAKING MOVES: Chavez foresees a demand for gold and is now shoring up his position.

Venezuela’s move “suggests a lack of comfort with holding gold abroad,” London-based UBS AG analyst Edel Tully said in an e-mailed report today. “This is another central bank that wants gold to play a greater role in its international reserves.”

Central banks are adding to their reserves of the metal for the first time in a generation. They bought 198 tons of gold so far this year, Marcus Grubb, managing director of investment at the World Gold Council, said on Bloomberg Television today.

Silver for December delivery in New York rose 0.8 percent to $40.705 an ounce. Palladium for September delivery fell 1.4 percent to $765 an ounce. Platinum for October delivery was little changed at $1,841 an ounce after yesterday reaching $1,848.80, the highest price since June 10.

To contact the reporter for this story: Nicholas Larkin in London at [email protected]; Glenys Sim in Singapore at [email protected]

To contact the editors responsible for this story: Claudia Carpenter at [email protected].