DEBT FINANCING. Gold Gains as Slide Below $1,600 Spurs Physical, Investor Demand

Sept. 29 (Bloomberg) -- Gold gained in London as the metal’s drop below $1,600 an ounce boosted physical purchases and as investors sought a protection of wealth from Europe’s debt woes.
The European debt crisis continues to be a drag on the U.S. economy, President Barack Obama said yesterday, while data today showed European confidence in the economic outlook dropped more than economists forecast in September to the lowest in almost two years. Gold, which has fallen 16 percent from its record earlier this month, this week slipped below $1,600 for the first time since July.
“Physical demand has been very extraordinary,” Bernard Sin, head of currency and metal trading at bullion refiner MKS Finance SA in Geneva, said by phone today. “We’ll continue to see that demand coming in. There’s a lack of confidence in Europe and the U.S.”
Immediate-delivery gold rose $8.97, or 0.6 percent, to $1,617.78 an ounce by 11:22 a.m. in London. The metal earlier today fell as low as $1,583.82. Gold for December delivery was little changed at $1,618.80 on the Comex in New York.
Gold is in the 11th year of a bull market, the longest winning streak since at least 1920 in London. Prices reached a record $1,921.15 on Sept. 6 as investors sought to diversify away from equities and some currencies. The metal is up 14 percent this year and 7.8 percent this quarter, as commodities head for their biggest quarterly slump since 2008.
Bullion fell to $1,620 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,643 at yesterday’s afternoon fixing.
Recession Concern
Germany’s lower house of parliament approved the expansion of the European bailout fund, the European Financial Stability Facility, today in Berlin. The measure is set to be debated by the upper house, or Bundesrat, tomorrow.
The euro-area economy will fall into recession during the next 12 months, according to about three-quarters of those questioned this week in a global poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. Forty percent see the 17-nation currency bloc losing at least one member in the next year and 53 percent said turmoil will worsen in a banking sector laden with government bonds.
“The turmoil in Europe only seems to be getting worse,” Jonathan Barratt, managing director at Commodity Broking Services Pty., wrote in a report. “Growth in demand is coming from India and China.”
Festival Season
The slump in prices from a record will fuel demand during the festival season in India, the biggest buyer, according to Titan Industries Ltd., the nation’s biggest jewelry retailer.
Premiums paid over the London spot price for gold bars in India were quoted at the highest level in more than a year, according to Phillip Futures analyst Ong Yi Ling. Premiums in Hong Kong have almost doubled to $2 to $3 per ounce, said Dick Poon, precious-metals trading manager at Heraeus Ltd.
Gold exchange-traded-product holdings fell 2.7 metric tons to 2,218.4 tons yesterday, the lowest level in two months. Assets reached a record 2,298.4 tons on Aug. 8, Bloomberg data show.
Silver for immediate delivery climbed 2.7 percent to $31.6625 an ounce. The metal is little changed this year after touching a record $49.79 on April 25.
Platinum rose 0.5 percent to $1,533.70 an ounce, after earlier this week dropping to $1,471.25, the lowest since May 2010. Gold’s premium over platinum was at 5.5 percent, near the most since January 1992, data compiled by Bloomberg show. Platinum’s relative-strength index has fallen to about 22.2. A drop below 30 indicates a climb in prices may be imminent to some analysts who study technical charts.
Wash-Out
Platinum’s “recent fall to below $1,500 is in our opinion, fundamentally unsustainable and partly reflects the wash-out seen in the whole commodities sector,” Royal Bank of Scotland Group Plc said today in an e-mailed report. The metal is “heavily oversold and appears braced for a sharp rebound when the panic subsides.”
Palladium was up 0.6 percent at $624 an ounce. It fell to $605.25 earlier this week, the lowest level since October.

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