Gold surged higher on Monday, boosted by higher oil prices, a lower dollar and investor concern about inflationary pressures given the large amounts of money being pumped into the global economy.
Autocatalyst material platinum jumped more than 6% to $840 an ounce, while palladium gained more than 12% to $179.50 on growing optimism about a rescue for the auto industry in the United States. Spot gold gained more than 3% to $779.90 an ounce and was quoted at $778.30 to $780.30 from $754.60 in New York late on Friday, when it fell to $740.40, the lowest since November 20 in a commodities-wide sell-off.
To some, talk of inflation is premature given that the world is grappling with the prospect of deflation, but forward looking investors are adding to their holdings of the precious metal to preserve the value of their portfolios.
“We will see some deflation, but that will be short lived and the inflationary impact of substantial fiscal stimulus ... will inevitably lead to inflation,” said John Meyer, analyst at investment bank Fairfax. “Gold will be an important commodity in the protection of value,” he said. Fairfax expects gold to average $900 an ounce next year compared with a previous forecast at $550.
Central banks have pumped cash into the world’s financial system and slashed interest rates in an attempt to ease the credit crunch and boost confidence.
Chinese and European leaders were due to plot their next steps yesterday to move the world economy back from a precipice, while stimulus measures presented, planned or pending injected optimism into stock markets. Adding to investor worries about inflation was oil, which rose above $43 a barrel.
Gold often rises in line with oil, which can trigger inflation, while a weaker US currency makes metals priced in dollars cheaper for holders of other currencies. Palladium was quoted at $178 to $185 an ounce from $159.50 on Friday and platinum at $839 to $859 from $788.
However, platinum prices are still more than 60 per cent below March’s record high of $2,290 an ounce. “A quick recovery of the platinum price ... does not appear to be on the cards,” metals refiner Heraeus said in a note. “The outlook on the economic front portrays a very pathetic picture which will not only hold the industry back, but also give investors second thoughts on investing in platinum metals.” (Reuters)