Gold in New York rose, erasing earlier losses, on speculation turmoil in commodity markets, sparked by a slump in energy prices, will boost demand for the precious metal as a haven.
A 7.8% drop in crude-oil prices last week sparked a plunge in the Reuters/Jefferies CRB index to the lowest since February 2005. Gold, which often trades as a currency, rose 23% in 2006, while the dollar fell 10% against the euro and oil dropped 3.3%. „Silver and gold have found some strength, despite crude getting hit and the euro losing strength,” said Carlos Perez-Santalla, president of Hudson River Futures in New York. „Investors are buying gold as insurance as other assets are losing value.”
Gold futures for February delivery rose $5.60, or 0.9%, to $615 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier reached $617.40 and dropped as low as $607. Silver futures for March delivery rose 23.5 cents, or 1.9%, to $12.595 an ounce. Prices have gained 35% in the past 12 months. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Oil touched the lowest in 18 months before paring losses yesterday as mild weather in the eastern US slashed demand for heating fuel. Futures for February delivery fell 24 cents, or 0.4%, to $55.85 a barrel at 2:05 p.m. on Nymex after touching $53.88.
Gold is cheap compared with oil, said Dennis Gartman, trader, analyst and editor of the Suffolk, Virginia-based Gartman Letter. It takes about 11 barrels of oil to buy an ounce of gold. „We expect the ratio to move upward toward 15 to 1 and ultimately toward 20 to 1,” Gartman said in a report. Gold futures reached $873 an ounce in January 1980 after oil costs doubled in a year, sparking a surge in the inflation rate.
Gold may still move in tandem with oil, said Frank McGhee, head metals trader at Integrated Brokerage Services Inc. in Chicago. „It's going to be hard for gold to rally with oil remaining a drag,” McGhee said. Gold rebounded after oil erased earlier losses, he said. (Bloomberg)