Gold Rises Most in a Week on Middle East, South Asia Tensions

“The only possible explanation for gold’s gains are the geopolitical tension in Gaza and in India and Pakistan,”

The Treasury bubble will burst and the dollar will be destroyed in 2009. That is why Gold is starting to rise.


Dec. 26 (Bloomberg) — Gold prices rose the most in a week as mounting tensions in the Middle East and South Asia boosted the appeal of the precious metal as a haven.

Palestinian militants yesterday launched their biggest rocket attack on southern Israel in at least six months after a truce expired Dec. 19. Pakistani troops are being diverted from tribal areas near Afghanistan to the border with India, the Associated Press reported. Gold gained 4 percent this week.

“The only possible explanation for gold’s gains are the geopolitical tension in Gaza and in India and Pakistan,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for February delivery climbed $23.20, or 2.7 percent, to $871.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain for a most-active contract since Dec. 17. The metal is up 6.4 percent this month.

Silver futures for March delivery gained 18 cents, or 1.7 percent, to $10.53 an ounce. The metal is still down 29 percent this year. (Just wait!)

Indian Foreign Minister Pranab Mukherjee stepped up diplomatic pressure on Pakistan to act against those behind last month’s Mumbai terrorist attacks.

India is the world’s biggest buyer of gold, accounting for more than 20 percent of purchases last year, according to the World Gold Council.

Some investors buy gold as a haven when military tensions threaten to disrupt financial markets. Crude oil rallied as much as 7.2 percent.

The Middle East was responsible for 31 percent of global oil production in 2007, according to BP Plc, which publishes its annual Statistical Review of World Energy each June.

Gold, Oil Rally

“Not since 1967 is it so obvious there is going to be a war in the Middle East that will send gold and oil well past this year’s highs,” said Ralph Preston, a commodity analyst at Heritage West Financial Inc. in San Diego.

Gold, up 4 percent this year, is the only metal poised for an annual gain. Bullion may attract investors seeking a store of value as the dollar weakens and yields on short-term U.S. Treasury notes fall below zero.

“Gold may be a good place because it is competing against zero rate of return,” said Ron Goodis, a retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. “When most else is unsafe, or yielding virtually nothing, at least gold has some historical significance.”

The Federal Reserve on Dec. 16 slashed the benchmark lending rate to almost zero from 1 percent. The federal-funds rate was at 5.25 percent in September 2007 when policy makers began to cut borrowing costs as the economy headed into a recession.

Platinum Gains

Platinum prices rose the most in almost three weeks on speculation that U.S. car sales will pick up after the Fed allowed lender GMAC LLC to convert to a bank.

GMAC’s shift eases the threat of a default that threatened to dry up credit for General Motors Corp. dealers who used the lender to finance about three-quarters of their inventories. GMAC also handled loans for about 35 percent of GM’s 2007 retail buyers. Automakers account for 60 percent of global platinum use, according to Johnson Matthey Plc.

“Platinum has some support,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Anything that helps consumers finance car loans should help lift car sales a little bit.”

Platinum futures for April delivery gained $31.10, or 3.6 percent, to $894.50 an ounce on the Nymex, the biggest gain since Dec. 8.

Palladium futures for March delivery rose $1.10, or 0.6 percent, to $176 an ounce. Platinum and palladium are used in pollution-control devices in cars. The metals have tumbled more than 41 percent this year as auto sales plunged.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

Last Updated: December 26, 2008 14:38 EST
By Pham-Duy Nguyen

Source: Bloomberg

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