Gold, Silver Rally on Concern Oil Gains Will Spark Inflation
April 17 (Bloomberg) -- Gold rose to a 25-year high, and silver topped $13 an ounce for the first time since 1983, on concern that the dispute over Iran's nuclear program will disrupt oil exports and spur inflation.
Iran has expanded its underground nuclear sites in the cities of Isfahan and Natanz, the Institute for Science and International Security said. The UN Security Council demanded the suspension of Iran's program by the end of this month. Iran, the world's fourth-largest oil producer, has refused.
Gold and silver have rallied on concern that gains in energy and metals prices will boost the cost of consumer goods. Oil jumped to a record high today in London. Investors are buying precious metals as a hedge against inflation and on speculation that they will outperform stocks and bonds.
``We're in the throes of a protracted bull market,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. ``This is a fund-buying frenzy. It's being fed by investor interest. You're seeing the metals inflating against all paper currencies.''
Gold futures for June delivery rose $13.60, or 2.3 percent, to $613.70 an ounce at 12:16 a.m. on the Comex division of the New York Mercantile Exchange, after reaching $614.30, the highest since December 1980. A close at that price would be the biggest gain since March 30. The Comex was closed April 14.
Gold for immediate delivery rose $4.80 to $607.80 at 4:54 p.m. in London. Prices are up 42 percent in the past year.
Silver rose 37.5 cents, or 2.9 percent, to $13.123 an ounce on the Comex, after earlier reaching $13.33, the highest since March 1983. Silver has jumped 87 percent in the past year.
Iran's Plans
Iran's President Mahmoud Ahmadinejad last week announced his country had enriched uranium sufficiently to produce nuclear-reactor fuel. Iran is now ``some years away'' from developing a nuclear bomb, Thomas Fingar, deputy U.S. director of national intelligence, said two days later.
Ahmadinejad said yesterday his country is ready to share its technology with ``poor peoples of the world,'' and the Washington Post today reported federal law enforcement authorities say Iran has stepped up efforts to illegally obtain weapons technology from the U.S.
``Oil prices and continued inflammatory comments from Iran are driving gold,'' said Daniel Vaught, an analyst at A.G. Edwards & Sons Inc. in St. Louis.
Oil Rally
Concern about possible sanctions against Iran sent Brent crude oil for June delivery to an all-time high of $71.40 a barrel on the ICE Futures Exchange in London. Crude oil on the Nymex reached $70.05 and is up 39 percent in the past year.
``Gold is reacting to the strength in oil and the probability that inflation will rear its ugly head,'' said George Ireland, chief investment officer of Boston-based Geologic Resource Partners, a $300 million venture capital and hedge fund.
The Goldman Sachs Commodity Index is up 9.8 percent this year, led by gains in silver, copper, gasoline and gold. U.S. consumer prices probably rose 0.4 percent last month, up from 0.1 percent in February, a Bloomberg survey showed.
Some investors buy gold in times of inflation, which erodes the value of fixed-income assets such as bonds. Gold futures surged to $873 an ounce in 1980, when U.S. consumer prices rose 12.5 percent from the previous year.
Hedge Funds
Hedge-fund managers and other large speculators increased their net-long position in Comex gold by 30 percent in the four weeks ended April 11, reports from the U.S. Commodity Futures Trading Commission show.
Speculative long positions, or bets prices will rise, outnumbered short positions by 124,332 contracts as of April 11, up from 95,940 on March 14, CFTC data show.
Investors are snapping up bullion in all currencies as an alternative to stocks and bonds, analysts said. The MSCI World Index, which measures stocks in 23 major markets, has climbed 6.7 percent this year, lagging behind the precious metal. The MSCI World Sovereign Index, which includes the debt of 21 major markets, has dropped 1.3 percent.
Gold sold in yen has gained 16 percent this year while gold sold in euros has climbed 13 percent. Last year, the metal gained 36 percent in both currencies while gold sold in dollars gained 18 percent.
``Gold is a currency,'' said Geologic's Ireland, whose fund invests in mid-tier mining companies. His firm also owns 276,293 shares of StreetTracks Gold Trust, an exchange-traded fund that holds gold.
Exchange-Traded Silver Fund
Silver has gained more than $3 since January in anticipation of U.S. government approval for Barclays Plc's exchange-traded fund linked to the metal. The fund makes it easier to own silver and is modeled on StreeTracks, which drew $6.9 billion in investment since its debut in November 2004.
The relative strength index for silver reached 88.99 today, the highest this year. Readings above 70 indicate a price may be poised to fall. The index has been above 70 since March 22.
Hedge-fund managers and other large speculators decreased their net-long position in silver futures for the week ended April 11. Speculative long positions fell by 5,707 contracts, or 11 percent, to 46,139.
``If you're not in at all, it's sort of a stand-aside moment,'' McGhee said. ``Silver is a little pricey. I'm more comfortable buying gold than silver if I'm not already in the market.''
To contact the reporters on this story:
Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net;
Julie Tay in London at jtay1@bloomberg.net
Last Updated: April 17, 2006 12:29 EDT
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