Gold jumps 1 percent, over $1,400 on Mideast violence

By Jan Harvey

LONDON | Mon Feb 21, 2011 2:36pm EST

LONDON (Reuters) - Gold prices jumped above $1,400 an ounce on Monday for the first time in nearly seven weeks as violence flared in north Africa and the Middle East, raising interest in the precious metal as a haven from risk.

Bullion has risen 3.5 percent over six days of gains, its longest winning streak since August, as protests that have unseated leaders in Egypt and Tunisia spread to neighboring states, threatening the grip of long-entrenched autocratic leaders elsewhere.

Spot gold rose as high as $1,408.20 an ounce and was bid at $1,405.23 an ounce at 1900 GMT, up 1.2 percent or $16.65 an ounce and within some $25 of an all-time high. Prices have risen from an almost four-month low of $1,300 in late January.

U.S. gold futures for April delivery rose $18.40 an ounce to $1,407.10, with trading volume about one-third the 30-day average due to the Presidents' Day U.S. holiday.



"The unrest and the fear in these countries is increasing," said Bayram Dincer, an analyst at LGT Capital Management in Switzerland. "These uncertainties on the geopolitical risk side are driving the gold market."

"See how easily gold broke $1,390, $1,395, which were strong resistance levels, and now the $1,400 psychological level," he said. "It seems nobody is looking for lower gold prices."



Other safe-haven assets also rose, with bund futures up and the Swiss franc gaining against the dollar and the euro. Brent oil prices meanwhile surged above $105 a barrel for the first time since 2008 as the turmoil hit oil supplies while European shares slipped.

Silver jumped 4.3 percent to $33.85, hitting its highest since the Hunt Brothers surge 31 years ago and widening the gold ratio -- the number of ounces needed to buy an ounce of gold dropping -- to around 42, a near 13-year low.



VIOLENCE HITS TRIPOLI

Dozens of people were reported killed in Tripoli as anti-government protests reached the Libyan capital for the first time.



The Libyan uprising is one of a series of revolts that have spread across the Arab world since December, threatening entrenched dynasties from Bahrain to Yemen.

The protests have pushed gold higher even as interest in investment products like exchange-traded funds stayed soft.

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 1,223.1 tones, data from the fund showed.

"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," said Daniel Major, an analyst at RBS Global Banking & Markets.

"I potentially wouldn't rule out larger purchases by high net worth individuals on the back of the unrest we're seeing."

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Gold Prices Gain on Rising Inflation

NEW YORK (TheStreet ) -- Gold and silver prices were getting a boost Thursday from a higher-than-expected inflation reading in the U.S.

Gold for April delivery was rising $6.70 to $1,381.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price broke through the $1,380 resistance level to hit a high of $1,383.80. The spot gold price was adding $5.40, according to Kitco's gold index.

Silver prices were up 29 cents to $30.92, hitting a high of $30.94, just shy of the $31 resistance area.

Leading today's minor rally was news that year over year inflation grew to 1.6% in the U.S. Excluding food and energy prices, the Consumer Price Index was still up 1% on the year. Although still below the Federal Reserve's 2% inflation target rate, the surge was enough to prompt traders to buy gold and silver as an inflation hedge.

A higher reading, however, might also bring back the debate of higher interest rates, the Fed's primary tool to fight inflation. Although Bernanke has promised low rates for "an extended period of time," the worry of a hike could temper prices.

Jon Nadler, senior analyst at Kitco.com, says it's entirely possible gold prices could hit $1,400, but not on inflation data alone "I think the spread of the societal unrest in the Middle East and North Africa might contribute more to gold bids."

Over the long term, however, Nadler says any interest rate hikes later in 2011 could "certainly pull the rug out from some of the bullish bids that gold has been receiving as an [inflation hedge]."

Expect gold prices to stay volatile Thursday and Friday. Not only is this weekend a long holiday in the U.S., which might cause traders to rotate into cash and book profits, but options expire on Friday. Options expiration happens once a month where traders must decide to either let their contracts expire and become worthless or roll them over to future months. In other words, traders do a lot of work during options expiration that tends to lead to more volatility in the market.

In the past three months, gold has sold off the week leading up to options expiration and then, two times out of three, rallied the Monday after.

In November, spot gold sunk $26 then popped $16 on Monday. In December, prices fell $31 then rose $12 on Monday and in January gold fell $17 then stayed flat on Monday, but the gold market was also dealing with beginning of the year rebalancing.

UK gold-buying firms agree change after OFT probe

LONDON Feb 14 (Reuters) - Gold-buying companies Cash4Gold, CashMyGold and Postal Gold have agreed to change the way they purchase metal from consumers after a year-long investigation by the UK's Office of Fair Trading.
The OFT said it was particularly concerned by the practice of sending consumers a payment, which if not rejected within a certain timeframe, was taken to have been accepted. The items sent by consumers were then melted down.
The three companies will now offer customers the option of receiving either a quotation requiring positive acceptance or a payment for their gold and include more information about the weight and carat of items assessed, the OFT said.
They will also make clear that the prices they offer to consumers are based on the scrap or smelt value of gold and clarify their policy on gemstones, it added.
The OFT raised concerns with five companies that consumers were being locked into accepting offers been made for their gold. They also included CashYourGoldNow and Money4Gold, which have ceased trading since the investigation was launched.
"These days we see more and more new business models which involve consumers' distance-selling goods to firms. These options are good for consumers, providing business practices are fair," said Heather Clayton, senior director of the OFT's Consumer Group.
"Where we see problems, however, we are keen to intervene early so that these markets develop with an appropriate level of consumer protection."
The business of buying back scrap gold from consumers has boomed in recent years as spot gold prices have surged on the back of concerns over global economic growth and the stability of the financial markets.
Figures from the World Gold Council showed that the amount of scrap gold returning to the market in the third quarter of last year -- the most recent quarter for which data is available -- rose 41 percent year-on-year.
Prices have soared by more than 50 percent since the collapse of Lehman Brothers in late 2008, hitting a record high at $1,430.95 an ounce in December.
(Reporting by Jan Harvey; Editing by Jane Baird)

Gold ends week at $1,356 after US dollar rises after US trade balance update

Gold prices were unresponsive to the long awaited resignation of Egyptian president Hosni Mubarak, which followed more than two weeks of intense mass protests that at one point turned violent.
Traders were opting for the US dollar, which was in demand after an update from the Commerce Department showed that US trade deficit widened from US$38.3 billion in November to US$US$40.6 billion in December.
Safe haven demand was quite low after the US Labor Department reported that initial jobless claims dropped 36,000 to 383,000 last week, hitting the lowest level in over two years, while the University of Michigan consumer confidence index surged from 74.2 in January to 75.1 in February.
In his testimony to the House Budget panel, chairman of the Federal Reserve Ben Bernanke indicated that the Fed’s monetary policy would remain unchanged as unemployment in the US is still too high, while inflation is too low and the job market has shown only slow improvement.
This means that the interest rates will remain at the current ultra low level for an extended period of time, while the Fed will continue its US$600 billion stimulus programme.
The Fed’s asset purchase programme is beneficial for gold, which is seen as an inflation hedge and an alternative asset to the US dollar, which will likely be weakened by further money printing.