Wednesday, October 26, 2011

Gold above $1700 - Regains Haven Status

By Tatyana Shumsky Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Gold futures settled at a one-month high as the precious metal returned to its role as a safe haven amid uncertainty over the upcoming European Union debt summit.

Investors traditionally view gold as maintaining its value during times of financial turmoil, but for the past two months, the metal has risen and fallen in line with riskier assets such as stocks and commodities. Worries that a euro-zone member could default on its debt and create another global credit crunch have had investors selling gold to hold cash since September.

The link between gold and riskier assets appeared to snap after European finance ministers canceled a meeting set for Wednesday. Gold futures climbed above $1,700 a troy ounce for the first time in more than a month, while equity and commodity prices fell.

"The catalyst was the finance ministers' meeting cancellation ... that really just unleashed a very strong wave of safe-haven buying," said Jim Steel, a precious-metals analyst with HSBC in New York.

The cancellation unveiled simmering discord in the currency bloc, as officials wrangle over how best to beef up the region's rescue fund, recapitalize its banks and set the writedowns necessary for Greece's sovereign debt. The euro zone's main Wednesday summit remains as scheduled.

"This is a crucial day for gold," said Adam Klopfenstein, a senior market strategist with MF Global. "It's moving up with bonds, the dollar and the yen, and that tells me the 'flight-to-quality' money is back in."

The contract for October delivery rose $48.10, or 2.9%, to settle at $1,699.60 a troy ounce, its highest settlement since Sept. 22. The more actively traded December contract settled at $1,700.40.

Gold also got a boost Tuesday from falling treasury-bond yields, which eased in response to the euro-zone worries and a sharp decline in U.S. consumer confidence.

"We've seen long-term bond yields fall, and that reduced the opportunity cost of holding gold," said Bart Melek, senior commodity strategist with TD Securities. Lower bond yields augment gold's allure because the yellow metal doesn't earn interest.

The rest of the precious metals complex followed gold's cues, with December-delivery silver rallying 4.5% to settle at $33.052 a troy ounce. Nymex palladium for December delivery rose $13.60, or 2.1%, to settle at $652.10 a troy ounce........orginal source

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