European crisis, Iran row add to gold's rising appeal

LONDON: Gold traders are the most bullish in a month as Europe's deepening debt crisis and increasing tensions over Iran drove the metal to its longest winning streak since October. Ten of 22 surveyed by Bloomberg expect the metal to gain next week and five were neutral, the highest proportion since December 9. 

The US Mint sold 45,500 ounces of American Eagle gold coins this month, compared with 65,500 ounces in the whole of December and 41,000 in November, data on its website showed. Britain and France will press the European Union to stop Iranian crude imports at a January 30 meeting, in response to the country's nuclear program . 

Iran is threatening to retaliate by blocking the Strait of Hormuz, a key chokepoint for global oil supplies. Greek Prime Minister Lucas Papademos warned his nation may face economic collapse as soon as March. Investors are holding a near-record amount of gold through exchangetraded products after the metal rose for an 11th consecutive year. 

"European sovereign-debt risk and the geopolitical risk of the Iranian situation escalating should support gold," said Mark O'Byrne, executive director of Dublin-based GoldCore, a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. "Gold's safe-haven attributes will continue to be in demand." 

ANNUAL GAIN 

Bullion rose 10% last year, beating the 1.2% decline in the Standard & Poor's GSCI Total Return Index of 24 commodities and the 9.4% retreat in the MSCI All-Country World Index of equities. Treasuries returned 9.8% last year, a Bank of America index shows. 

The metal, which traded at $1,622.50 an ounce at 9:47 a.m. in London, fell almost 19% from its record closing price of $1,900.23 on September 5 through December 29, within 1 percentage point of the common definition of a bear market. Gold rallied 5% in five days ended yesterday, the longest run of gains since October. 

Traders also anticipate advances in raw sugar, corn and soybeans next week. Copper may decline, the surveys showed. Holdings in bullion-backed ETPS reached 2,355.3 metric tonsne on January 4, within 2% of the all-time high set December 13, data compiled by Bloomberg show. The hoard, valued at $121.7 billion, exceeds the reserves of all but four central banks. 

MONEY MANAGERS 

Hedge funds and other money managers cut bets on higher prices to 111,919 futures and options in the week ended on December 27, the lowest since January 2009, US Commodity Futures Trading Commission data show. The drop preceded the rally in prices. The last time the net-long position was that low, prices climbed about 16% in the next four weeks. 

The US and its allies are tightening restrictions on Iran, accusing it of a covert plan to build nuclear weapons, a charge Iran's government denies. About one in six barrels of oil traded worldwide flows through the Strait of Hormuz between Iran and Oman, according to the US Department of Energy. 

Brent crude may rally 11% to $125 a barrel should the EU ban imports of Iranian oil, according to Societe Generale. Some investors buy gold as a hedge against faster inflation, which may quicken if oil prices advance. Greece's Papademos is racing to complete a voluntary swap of debt with private bondholders, part of the new rescue plan for the country which also includes 130 billion euros ($167 billion) of public funds. 

France's credit outlook was lowered by Fitch Ratings on December 16 on the "heightened risk of contingent liabilities" from the escalating euro-region crisis. Standard & Poor's is reviewing the ratings of France and Germany. 

'LIQUIDITY DRIES UP' 

"If the debt crisis blows up it could affect banking liquidity, and if liquidity dries up, all commodities, even gold, will fall," said Marc Ground, a commodities strategist at Standard Bank in Johannesburg. A weakening rupee is also driving up prices in India, the 'biggest consumer', damping demand. Imports may drop 48% to 150 tonne in the first quarter from a year earlier, Prithviraj Kothari, president of the Bombay Bullion Association, said on January 3. 

Imports fell to 875 tonne to 880 tonne last year from 958 tonne in 2010, he said. Turkey bought about 41.3 tonne of gold for official reserves in November, data from the International Monetary Fund shows. Central banks may buy 600 tonne this year, according to Goldman Sachs Group. Combined official holdings stand at 30,744 tonne, data from the London-based World Gold Council show. 

RAISING HOPES 

Investors are holding a nearrecord amount of gold through exchange-traded products after the metal rose for an 11th consecutive year Bullion rose 10% last year, beating the 1.2% decline in the S&P's GSCI Total Return Index of 24 commodities The metal fell almost 19% from its record closing price of $1,900.23 on September 5 through December 29.