Gold to Climb for Sixth Week, Extending Best Quarter Since 2010

September 28, 2012 at 08:51

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Gold firmed slightly on Friday, holding near a one-week peak hit in the previous session as Spain’s economic reform plan eased worries about euro zone’s finances, while the strength in oil prices also lent support.

Spot gold is headed for an 11-percent rise in the third quarter, its biggest such gain since the second quarter of 2010, buoyed by recent stimulus measures from the Federal Reserve and the European Central Bank. Bullion is used as a hedge against higher inflation outlook triggered by easy monetary policy.

Spain’s budget plan set the stage for a bailout request, bringing relief to investors skittish over Madrid’s finances and euro zone’s ability to contain its debt crisis. The euro firmed against the dollar after the news, boosting commodities priced in the greenback.

Though some have warned about the high speculative interest in gold in recent weeks and a potential sharp pullback as a result, the medium to long-term outlook for the precious metal remains rosy.

“There is definitely no reason for gold to go back to $1,500 level,” said Yuichi Ikemizu, head of commodity trading, Japan, Standard Bank. “I don’t see gold going on a spectacular rally right now, but towards the end of year it is likely to hit $1,900 level.”

Gold also drew support from high oil prices, which are usually associated with rising inflation and tends to add to the appeal of bullion as a hedge against rising prices.

Brent crude held above $112 per barrel, extending gains after an 1.8 percent rise in the previous session.

The gold forward contract on the Shanghai Gold Exchange traded up 1 percent to 359.89 yuan a gram in the last trading day before China kicks off a week-long National Day holiday.

“We see fresh buying interest, as investors bullish on gold position themselves ahead of the long holiday,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Fung added that premium for gold bars in Hong Kong, a main conduit for gold flow into China, ranged between 50 cents to $1 an ounce above London prices.