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Gold, silver rise to 9-month high on demand for inflation hedge

Gold and silver climbed to nine-month highs as a rally in commodity prices spurred demand for precious metals as a hedge against inflation.

Investment in exchange-traded funds for gold rose 5.4% this year amid gains in commodities including natural gas, nickel, corn and soybeans. The Reuters-Jefferies CRB Commodity Price Index is the highest since December 8 as oil rose to the highest price this year and copper climbed for a third day. „There's been huge buying of investment metal this week in the form of bars and coins,” said Wolfgang Wrzesniok-Rossbach, head of sales and marketing at Heraeus Holding GmbH in Hanau, Germany. „People are watching commodity prices going back up.” Gold futures for April delivery climbed $3.70, or 0.5%, to $686.70 an ounce on the Comex division of the New York Mercantile Exchange, after reaching $691.90, the highest since May 18. Prices rose 2.1% this week, its seventh weekly gain and the longest rally since the futures reached a 26-year high of $732 in May. Silver for March delivery gained 34.5 cents, or 2.4%, to $14.595 an ounce after rising to $14.66, the highest since May 12. Prices reached a 23-year high of $15.20 on May 11. Gold may climb to $700 and silver to $15 next week, said Michael Guido, director of hedge-fund marketing at Societe Generale SA in New York.

A mix of investors and speculators are buying the metals, while energy and copper prices have been boosted mostly by just speculators, who are more prone to sell than investors willing to hold metal for longer periods, he said. There is a „big difference flow wise,” Guido said. Investment demand in exchange-traded funds is 19.1 million ounces, according to the World GoldCouncil's Exchange-Traded Gold Web site. That's up from 18.14 million ounces at the end of 2006. The outlook for gold remains bullish, because economic growth will boost commodity prices and spur inflation, said Pierre Lassonde, the vice chairman of Newmont Mining Corp., the world's second-largest gold producer, after Barrick Gold Corp.. „We have China, India and Asia growing at 10% per year, almost 40% of the world's population,” Lassonde said yesterday, during a Newmont conference call with analysts. „They are right at the take-off point in terms of demand for all natural resources. That growth is not about to stop.” In November, Lassonde, who is also chairman of the industry funded World Gold Council, said prices may rise to $700 an ounce over the next 12 months with downside risks of $20 to $30. Palladium futures rose $7.40 to $358.10 an ounce and platinum gained $7.60 to $1,237.60 an ounce. (Bloomberg)