Gold Tops $1,500 an Ounce in ‘Flight to Quality’

PARIS — The price of gold rose above $1,500 an ounce on Wednesday for the first time ever, pushed higher by investor concerns about global inflation, government debt and turmoil in the Middle East.

Other precious metals, like silver and platinum, have also experienced a recent surge in prices on what analysts call a flight to quality, when uncertainty about the economic and political outlook pulls investors into assets that are perceived to be safest.

“We’re seeing a perfect storm for gold and silver prices,” said Robin Bhar, a senior metals analyst in London for the French bank Crédit Agricole.

The contract for May delivery of gold in New York rose as high as $1,506 a troy ounce during trading Wednesday before settling at $1,498.50, a gain of $3.90 on the day. It was the first time that gold had breached the $1,500 level.

While that represented the highest level ever in nominal terms, the real price was higher during the early 1980s, when it was well over $2,000 when adjusted for inflation. In March 2008, the nominal price of gold first broke the $1,000 level.

Silver prices also climbed Wednesday. Silver for May delivery climbed 1.2 percent to settle at $44.461 a troy ounce in New York, after rising as high as $45.40, the highest price since 1980. A troy ounce is 31.1 grams, or 1.1 ounces.

The list of factors that have supported the price of precious metals in recent weeks is long. It includes worries about the sustainability of European debt levels and whether countries like Greece will soon default; the weaker dollar; rising inflation in many parts of the world; continued unrest in North Africa and the Middle East, which has also pushed up oil prices; and concern over the U.S. budget, which also sent fear into world stock markets earlier in the week. Stocks recovered somewhat Wednesday after strong earnings reports restored investor confidence, analysts said.

Other factors that are helping precious metals include the buildup to the early autumn wedding season in India, during which families lavish gifts of gold on brides; the longstanding shortage of skilled labor and equipment at certain mines; and the increase in the number of mutual funds investing in gold.

The recent popularity of gold-based exchange traded funds, or E.T.F.’s, has also propelled prices of the underlying metal by making it easier for more investors to trade in gold.

Each share in an E.T.F. represents part of an ounce of bullion, but it comes without the inconvenience of holding the metal or the risk of buying futures and options. Before such funds became popular in the middle of the last decade, individuals who wanted to invest in gold had to buy gold jewelry, coins or bullion — and pay the high security and transaction costs. They could also invest in the shares of gold mining companies, a more arms-length exercise — although they, too, have risen recently.

In addition to benefiting from increased demand for the underlying metal, gold and silver futures contracts are seen as attractive substitutes for paper investments, given that they can be redeemed for a physical commodity.

“Gold is sometimes a currency, sometimes a commodity and sometimes a store of value,” analysts at Merrill Lynch wrote recently.

Although gold prices are likely to remain volatile and are vulnerable to retreat as investors take profits on their gains, few analysts are willing to bet on a major reversal in the near term. “As the purchasing power of workers in emerging markets increases, we see demand for gold as a commodity increasing over the next few years,” the Merrill Lynch report said.

In a research note published Friday, Goldman Sachs forecast a gold futures price of $1,690 an ounce in 12 months’ time, driven primarily by the assumption that the U.S. Federal Reserve’s continued stimulus policy, known as quantitative easing, would keep U.S. real interest rates low, bolstering demand for the metal as an investment.

The market for silver, which Mr. Bhar described as a “poor man’s gold,” is far more illiquid than gold. Mr. Bhar said several hedge funds appeared to have been “bullying” the price higher in recent sessions. Prices of palladium and platinum have also climbed.

Investment and consumer spending in the country have remained robust despite Beijing’s efforts to temper growth through interest rates increases and curbs on bank lending.

Less valuable base metals like copper, tin, aluminum and zinc, which are used in large quantities in construction and heavy industries, have also climbed since last year, having previously plummeted during the financial crisis.

But among these commodities, there have been more divergences, according to Jim Lennon, head of commodity research in London for Macquarie Securities.

Markets for commodities like coking coal, used to make steel, iron ore and copper have been “tight,” he said, driven by inventory accumulation from producers and concerns about output bottlenecks at mines from Chile and Brazil through Africa to China and Australia.

For other base metals like aluminum, zinc and nickel, supply and demand appear better matched, he added.

Overhanging many of these markets remains the question of China, and whether its roaring economy might soon cool down. Many metals’ traders and analysts have had to become China watchers, poring over the economic data issued by that country and studying accumulations of stocks in Chinese warehouses. During the first quarter, China’s economy expanded 9.7 percent from a year earlier.

Article source: http://feeds.nytimes.com/click.phdo?i=c6921caf5340596282cf081b73cc3e66