European Debt Crisis Spurs Gold, Again

Bloomberg – Gold futures advanced above $1,700 an ounce to a one-month high as concerns about Europe’s debt crisis spurred demand for the metal as a protection of wealth.

European Union talks with banks on bondholder losses as part of a second Greek rescue package are deadlocked, an EU official said on condition of anonymity. European leaders hold a summit today in a bid to reach agreement on measures to solve what U.S. Treasury Secretary Timothy F. Geithner called the “catastrophic risk” posed by the turmoil. Gold exchange-traded product holdings climbed to a one-month high yesterday.

“The size of the debt issues are unlikely to go away regardless of what policy makers decide,” analysts at TheBullionDesk.com in London wrote today in a report. “Given this uncertainty we are not at all surprised gold is attracting fresh safe-haven buying.”

Gold for December delivery gained as much as $25.20, or 1.5 percent, to $1,725.60 an ounce, the highest price since Sept. 23, and was at $1,719.90 by 12:02 p.m. on the Comex in New York. Immediate-delivery gold was 0.9 percent higher at $1,720.73.

Bullion is in the 11th year of a bull market and futures reached a record $1,923.70 an ounce on Sept. 6 as investors sought to diversify away from equities and some currencies. The metal is up 21 percent this year.

The Bundesbank’s gold reserves may be used as collateral in the event that the European Financial Stability Facility can’t meet its payment obligations, German newspaper Bild reported, without saying how it obtained the information. Germany is the second-biggest bullion holder after the U.S., with 3,401 metric tons in reserves, World Gold Council data show.

Monetary System

Gold is coming back into use in the monetary system, either being used as collateral or being bought by central banks, Marcus Grubb, managing director of investment at the World Gold Council, said at a conference in London today.

The European summit caps six days of haggling among the region’s leaders over Greece’s second bailout, the recapitalization of banks and the retooling of the 440 billion euro ($612.8 billion) rescue fund. A finance chiefs’ meeting today was canceled because the bank recapitalization issue can’t be decided before other elements of the rescue package, a person familiar with the matter said on condition of anonymity.

“Safe-haven status is re-emerging,” Natalie Robertson, an analyst at Australia & New Zealand Banking Group Ltd., said by phone from Melbourne. “Sentiment is still very, very fragile at the moment and today will continue to be uncertain. Everyone’s waiting on the developments out of Europe.”

Holdings in ETPs backed by the metal gained 10.6 tons to 2,231.8 tons yesterday, the highest level since Sept. 23, data compiled by Bloomberg show. Assets reached a record 2,299.8 tons on Aug. 8.

Silver for December delivery rose 1.4 percent to $33.52 an ounce. Palladium for December delivery was down 0.7 percent at $647.85 an ounce. Platinum for January delivery gained 1.6 percent to $1,594.20 an ounce.

To contact the reporter for this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

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