Tuesday, Sep 14, 2010

(Updates with gold's record high. Adds comment.) 


   By Matt Whittaker 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Gold futures hit a record above $1,270 Tuesday as investors wanted the perceived safety of the metal after weaker-than-forecast data from Europe's largest economy.

The most-actively traded gold contract, for December delivery, was recently up $24.60, or 2%, at $1,271.70 a troy ounce on the Comex division of the New York Mercantile Exchange.

It hit an intraday high of $1,273, surpassing the record $1,266.50 reached in June as worries about European sovereign debt pushed investors to the perceived safety of the precious metal. Thinly traded front-month Comex September hit $1,270.40, an all-time high for a nearby contract. Spot gold also hit a new record of $1,271.25.

"It's a striking rally," said Jim Steel, senior vice president and metals analyst with HSBC in New York. "If not for the German data, we wouldn't see this reaction."

The gains in gold come as equities markets are on the decline following a sharp drop in a closely watched survey of expectations for Germany's economy.

The survey, published by the ZEW economic research institute, showed a drop in its economic expectations index to -4.3 in September, its lowest level since February 2009, from 14.0 points in August. Economists had expected a smaller fall to 9.0 points.

Gold often is bought as a refuge and investment-portfolio diversifier because it isn't as linked to economic cycles as more-industrial materials like copper and oil, or equities that form a proxy for the economy.

Just last week, gold posted a record settlement on fresh worries over Europe's banking sector. It then fell back as those concerns eased. Still investors remained reluctant to sell the metal too aggressively as they continued to be concerned about the state of the world's economic recovery.

In addition to uncertainty about world economies, gold also has a backdrop of support from seasonal factors and on news that Russian production of the metal is on the decline, said Ira Epstein, director of the Ira Epstein division of the Linn Group in Chicago.

Russia produced 98.08 metric tons of gold in the first seven months of the year, or 3.15 million troy ounces, 3.6% less than in the corresponding period last year, according to figures released Tuesday by the gold producers' union. Gold mining in the period produced 83.892 tons, down 5.93% on the year.

September also often is a stronger month for gold as market participants return from summer holidays and festival- and wedding-related buying ramps up in India, the world's largest gold-jewelry market

The lower U.S. dollar is also helping dollar-denominated gold, by making it less expensive for buyers using other currencies, bumping up demand.

The dollar fell to a 15-year low against the yen after the election of a new ruling party leader in Japan led investors to believe intervention to stem the yen's recent strength was less likely.

The greenback also slid below parity against the Swiss franc for the first time since December 2009, as solid Swiss economic fundamentals increase the chances, in some analysts' views, the Swiss National Bank on Thursday will increase key interest rates.

-By Matt Whittaker, Dow Jones Newswires; 212-416-2139; matt.whittaker@dowjones.com

(Grigori Gerenstein and Bradley Davis contributed to this report.)

(END) Dow Jones Newswires

September 14, 2010 10:40 ET (14:40 GMT)