Gold Rallies Above $1,300

July 22, 2013 at 10:12

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Gold jumped to a one-month high from London to Shanghai and Tokyo as expectations that the U.S. Federal Reserve will sustain stimulus hurt the dollar, while higher oil prices may boost the outlook for inflation.

Bullion priced in euros rose above 1,000 for the first time since June 20. Assets in the SPDR Gold Trust, the largest bullion-backed exchange-traded product, fell 0.7 percent last week, the least since the five days to June 14.

Gold rose 0.8 percent last week, capping the first back-to-back weekly gains since May, after Fed Chairman Ben S. Bernanke indicated that it’s too early to decide whether to begin scaling back bond purchases in September. The Bloomberg Dollar Index dropped for a second day, while crude in New York climbed for a fourth session after settling at a 16-month high on July 19.

“Investor sentiment toward gold seems to be turning more positive after Bernanke’s comments last week,” Lv Jie, an analyst at Cinda Futures Co., a unit of one of four funds in China created to buy bad debt from banks, said by phone from Hangzhou. “We’re probably going to see more short-covering in the near term as the U.S. dollar gets sold off,” Lv said, referring to some investors ending bets on losses.
Short Contracts

Gold for December delivery advanced as much as 2.4 percent to $1,325 an ounce on the Comex, also the highest since June 20, before trading at $1,319.80. Speculators increased their net-long position 56 percent to 55,535 futures and options by July 16, the highest since June 4, U.S. Commodity Futures Trading Commission data show. Short contracts fell the most since November after reaching a record the previous week.

Spot gold fell 21 percent this year, wiping more than $58 billion from the value of ETP holdings, after some investors lost faith in the metal as a store of value. Bullion entered a bear market in April, after rallying for 12 years, as unprecedented money printing by central banks failed to spur inflation. Oil in New York has surged 18 percent this year after declining 7.1 percent in 2012.

“As oil prices rise, especially in the U.S., inflation, which hasn’t been an issue and a reason gold is lower this year, may start to pick up,” said Lv. “Any move to stem a slowdown in China may spur physical demand. At the end of the day, whether or not Chinese investors will buy is determined by whether they think prices will go higher.”

The People’s Bank of China said July 19 that it ended a floor on lending rates, a move that may offer consumers more spending power.

The jump in gold triggered gains in related equities. Newcrest Mining Ltd., Australia’s biggest gold producer, surged 7.5 percent to A$11.95 in Sydney.