Gold posts longest rally in two months

Gold (COMEX:GCZ14) capped the longest rally since August as weaker global economies and slumping U.S. equities revived demand for the metal as a safe haven asset.

More than $970 million has been added to the value of global exchange-traded products backed by bullion this month. The metal has fallen back in favor after Federal Reserve officials indicated weaker foreign expansion posed a risk to the U.S. outlook. American retail sales dropped more than forecast in September, government figures showed today.

Stable U.S. consumer costs coupled with the Fed’s latest growth concerns are raising doubts that the central bank will increase interest rates anytime soon. Bullion slumped 8.4 percent in the third quarter as Standard & Poor’s 500 Index of shares reached an all-time high and the prospect of higher borrowing costs cut demand for an inflation hedge. The equity measure dropped to the lowest since April today.

“We are seeing some renewed interest in gold,” George Gero, a New-York based precious-metals strategist at RBC Capital Markets LLC, said in a telephone interview. Investors are “responding to weak economic numbers and the slump in the U.S. equities,” he said.

Gold futures for December delivery rose 0.9 percent to settle at $1,244.80 an ounce at 1:42 p.m. on the Comex in New York, the third straight gain and the longest rally since Aug. 14. Trading was more than double the average for the past 100 days for this time, data compiled by Bloomberg show.

Prices climbed 2.4 percent last week, the most since June. Minutes from the Fed’s September meeting released Oct. 8 highlighted growing concern that the strengthening dollar may hurt exports. The policy makers maintained a pledge to keep interest rates low for a “considerable time.”

Fed Outlook
Rising interest rates reduce gold’s allure because the metal generally only offers investors returns through price gains, while a stronger dollar typically cuts demand for a store of value. The metal climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent, boosting inflation concerns.

The precious metal traded near the highest price relative to crude oil in 17 months as signs of weakening growth help push crude into a bear market. U.S. consumer purchases decreased 0.3 percent in September, exceeding the 0.1 percent decline projected in a Bloomberg survey, Commerce Department data showed today.

Silver futures for December delivery climbed 0.4 percent to $17.464 an ounce on the Comex.

On the New York Mercantile Exchange, palladium futures for December delivery slumped 3.9 percent to $764.25 an ounce, the biggest drop since June. Platinum futures for January delivery fell 0.9 percent to $1,260.90 an ounce. Both the metals are mainly used to make pollution-control devices for automobiles.

“The retail-sales numbers were disappointing, and people are getting worried about the growth momentum coming to a halt,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview.

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