Gold Rises to Record; Silver at 27-Year High on Dollar’s Slump

Gold Rises to Record; Silver at 27-Year High on Dollar’s Slump
By Claudia Carpenter
Last Updated: February 27, 2008 06:28 EST
Source: http://www.bloomberg.com/apps/news?pid=20601012&sid=a72Zt55Nh1lw&refer=commodities

Feb. 27 (Bloomberg) — Gold rose to records in London and New York and silver gained to a 27-year high as the dollar’s all- time low spurred demand for precious metals as a hedge against inflation. Palladium rose to the highest since 2001.

Gold is up 15 percent this year as a U.S. housing slump and turmoil in credit markets led the Federal Reserve to lower interest rates when commodities were rising to records. The dollar declined on speculation Fed Chairman Ben S. Bernanke will signal more rate cuts in testimony to Congress today.

“With a weaker dollar, imports become more expensive and that can import inflation into a country,” said Ben Davies, chief executive officer of Hinde Capital Ltd. in London who helps manage the Hinde Gold Fund. “The Fed wants to inflate their way out of the problems of a huge deficit and a banking system that’s at the point of imploding.”

Gold for immediate delivery climbed $10.30, or 1.1 percent, to $958.45 an ounce as of 11:24 a.m. in London after earlier rising to a record $964.99.

The futures in New York increased $11.10 to $960 an ounce and gained to record $967.70 earlier.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials climbed to an all-time high yesterday, and is up 16 percent this year, led by increases in wheat, soybean oil and sugar. Oil today rose above $102 a barrel for the first time.

The Federal Funds rate is 3 percent, and another drop to 2.5 percent on March 18 “now looks virtually certain,” John Kemp, an analyst at Sempra Metals Ltd. in London, wrote in an e-mail today.

`Won’t Go Away’

“The major inflationary problem is located in the commodities sector with the lack of energy, transportation and other resources,” Kemp said in a phone interview yesterday. “That inflation problem won’t go away until commodity demand falls.”

Gold erased two days of declines sparked by the U.S. saying it would back sales of as much as 12.9 million ounces of gold by the International Monetary Fund. Central banks in China or India may absorb the sales, U.S. newsletter editor and trader Dennis Gartman wrote in a report yesterday.

China is “ripe for such a purchase as they are a nation diversifying their dollar holdings and seeking protection for their remaining holdings,” Davies at Hinde Capital wrote in a note to his clients yesterday.

China owns 19.29 million ounces of gold, worth $18.5 billion, or about 1 percent of its total $1.53 trillion in reserves. A call to Bai Li, a spokesman for the People’s Bank of China, wasn’t answered.

Platinum rose $7 to $2,155.50 an ounce, the first gain in three days and palladium increased as much as $28.50, or 5.3 percent, to $563 an ounce, the highest since July 2001.

Silver rose 69 cents to $19.46 an ounce, the highest since October 1980.

To graph technical gauges for gold: Moving Averages Relative Strength Index Fibonacci Back Test Technical Gauges

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net

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