Gold tops $1,400/oz as Mideast violence spreads

Reuters, Monday 21 Feb 2011

Rises in precious metals mark shift to 'safe-haven buying'

Gold prices rose above US$1,400 an ounce on Monday for the first time in nearly seven weeks as violence flared in North Africa and the Middle East, boosting interest in the precious metal as a haven from risk.

Tensions have spread from Egypt and Tunisia, where protests unseated leaders earlier this month, across the Middle East and North Africa, threatening the grip of long-entrenched autocratic leaders.

Spot gold rose as high as $1,400.40 an ounce and was bid at $1,399.60 an ounce, against $1,388.58 late in New York on Friday. U.S. gold futures for April delivery rose $11.70 an ounce to $1,400.30, having peaked at $1,401.30.

Gold priced in euros hit its highest since 19 January at EUR1,023.91 an ounce, and sterling-priced gold its highest since 14 January at GBP863.54 an ounce.

"There is no doubt that the recent move higher across the precious metals reflects a degree of safe-haven buying as a result of the unrest in the Middle East," said Daniel Major, an analyst at RBS Global Banking & Markets.

"If (buying) is not through the exchange-traded funds or a clear change in the net long on Comex, it is most likely to be through the physical market -- coin and small bar buying, and I potentially wouldn't rule out larger purchases by high net worth individuals on the back of the unrest we're seeing," he added.

"That has clearly been a game-changer in the last couple of weeks for gold and silver after what was quite a lethargic start to the year in terms of identifiable investment demand in the exchange-traded funds."

Holdings of the world's largest gold exchange-traded fund, New York's SPDR Gold Trust, fell to a nine-month low on Friday at 1,223.098 tonnes, data from the fund showed, even as prices rallied.

Risk aversion caused by North African upheaval has sparked buying of assets seen as a haven from risk. Bund futures rose as tension in Libya sparked safe-haven flows into German debt, while the Swiss franc rose against the dollar and euro.

Oil prices meanwhile surged nearly $3 a barrel to 2-1/2 year highs as traders eyed unrest in major producer Libya.

European shares eased in response to the tensions, though they later pared losses after well received German and euro zone economic data.

Other precious metals also rallied, with silver touching its highest in 31 years and palladium a 10-year peak. Silver outperformed gold, with the number of silver ounces needed to buy an ounce of gold dropping to around 42, a near 13-year low.

"Precious metals continued to recover as civil unrest intensified in the MENA region, with silver touching levels not seen since the peak of the Hunt Brothers squeeze in 1979/80," said Morgan Stanley in a note.

"We expect the combination of continued strength in investment demand and a sustained industrial demand recovery will support silver... this year before easing amid improved economic conditions in 2012."

Silver hit a high of $33.46 and was later at $33.36 an ounce against $32.46. Platinum was at $1,844.25 an ounce against $1,833.50, while palladium peaked at $859 and was later at $855.97 against $848.25.

Short link: