LONDON: Gold rose in London for a second consecutive day on speculation that a rebound in some commodities will increase the metal’s appeal as a hedge against inflation. Jewelers also bought gold before China’s Lunar New Year holiday.
“People will hold off selling gold when they see copper and other commodity prices higher,” said Bernard Sin, chief gold trader at MKS Finance in Geneva. “We are seeing good demand out of Asia” related to the Chinese festivals, he said.
Copper advanced in London, halting a 15% plunge this year, and crude oil climbed for a second day. Gold jewelry demand typically gains before holidays centered around Ramzan in September and the wedding season in India that starts around November, Sin said. China’s week-long holiday starts 19 February.
Gold for immediate delivery climbed $6.30 or 1% to $654.75 (Rs28,874)an ounce(28.35grams) at 12:07 pm in London. Prices are up 2.8% this year.
Bullion climbed to a record $850 an ounce in 1980 after central banks raised interest rates to control inflation.
The European Central Bank increased its benchmark interest rate in December to 3.5% to contain inflation and investors are expecting rates to head higher this year.
Gold will average $670 an ounce this year and $710 next year, Natexis Commodity Markets Ltd., the trading arm of the Paris-based bank Natixis, said in an e-mailed report. Bullion averaged $604 last year and $634 so far this year.
Economic growth in India and elsewhere in Asia will buoy jewelry demand, and sales by central banks in Europe should stay “well under” the annual cap of 500 tons a year, Natexis said.
“The driving force behind the bull run for gold has been the increase in activity from the investment community,” it said in the report.
Investors have bought 19.5 million ounces of gold in exchange-traded funds globally, the World Gold Council’s Exchange Traded Funds said in an e-mailed report. That’s more than China’s central bank, which at 19.2 million ounces was the 10th largest government holder at the end of 2005, according to London-based research company GFMS Ltd.