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Gold rises near 18 year high on investment demand

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http://www.bloomberg.com/apps/news?pid=71000001&refer=&sid=a9Di4twBjc3M

Gold Rises Near 18-Year High on Alternative-Investment Demand

Nov. 17 (Bloomberg) -- Gold rose to the highest in almost 18 years in New York as an industry report showed investors are seeking alternatives to U.S. and European currencies, stocks and bonds.

Demand for gold coins, bars and bullion-backed shares rose 56 percent in the third quarter, the producer-funded World Gold Council said today. Gold sold in dollars has rallied 11 percent this year, heading for a fifth-straight annual gain, as concern about quickening inflation grew and jewelry purchases increased.

``Investors are gravitating toward gold,'' said Tom Boustead, an analyst for Refco Inc. in New York. ``Europe doesn't look terribly attractive, and the U.S. still has the current account- deficit problem. That forces interest in hard assets.''

Gold for December delivery rose $6.90, or 1.4 percent, to $486 an ounce at 11:36 a.m. on the Comex division of the New York Mercantile Exchange. Prices earlier reached $487.80, the highest since January 1988. Prices are up 3.5 percent this week, even as the U.S. currency approached a two-year high against the euro.

A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.

Gold consumption by jewelers and investors was 838 metric tons in the third quarter, up 7.6 percent from a year earlier, the London-based World Gold Council said. Jewelry demand accounts for 73 percent of gold consumption.

Gold's rally this year has exceeded the 2 percent gain in the Standard & Poor's 500 Index. U.S. Treasuries have returned 1.7 percent, heading for the worst annual performance since 1999, according to Merrill Lynch & Co. data.

Bonds, Mining Companies

Investment-grade corporate bonds have gained 0.9 percent this year, including reinvested interest payments. They are also poised for the worst year since 1999, Merrill data showed. Junk bonds in the U.S. have risen 1 percent in 2005, the worst since 2002.

Shares of gold-mining companies rose. The Philadelphia Stock Exchange Gold & Silver Index of 13 producers, including Denver- based Newmont Mining Corp., rose 1.06, or 0.9 percent, to 115.35. The index has climbed 16 percent this year, led by gains in Johannesburg-based Harmony Gold Mining Co. and Toronto-based Goldcorp Inc.

The dollar has gained 14 percent against the euro this year as the gap between central banks' interest-rate benchmarks has widened. The U.S. currency has climbed 16 percent against the yen.

``The dollar's move up should not delude us into thinking the dollar is actually stronger,'' Michael Darda, chief economist at MKM Partners LP, said. ``There seems to be a global move out of paper and into gold, likely the result of the major central banks of the world keep short rates too low for two long.''

Interest Rates

The U.S. Federal Reserve has raised its target rate for overnight loans between banks to 4 percent from 1 percent since June last year. The European Central Bank has kept its rate at 2 percent and Japan's Prime Minister Junichiro Koizumi is pressing the Bank of Japan to keep rates near zero.

Gold yesterday soared $10.10 an ounce, the most since the day trading resumed after the Sept. 11 terrorist attacks in the U.S., as investors sought a hedge against rising consumer prices. The gain of 2.2 percent was the most since July 2004.

The energy-weighted Goldman Sachs Commodity Index yesterday rose 18.54, or 4.6 percent, to 423.77, the biggest percentage gain in eight weeks. The Philadelphia Stock Exchange Gold & Silver Index jumped 6 percent yesterday.


Last Updated: November 17, 2005 11:43 EST


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