Gold May Extend Rally to Six-Week High on Signs of Wilting Economic Growth

By Kim Kyoungwha - Aug 17, 2010 8:51 AM GMT+0400

Gold traded near the highest level in more than six weeks as signs of a cooling global economy are luring investors back to the metal to protect their wealth.

Gold for immediate delivery swung between a gain of 0.1 percent and a loss of 0.2 percent before trading at $1,224.10 an ounce at 12:45 p.m. in Singapore, after rallying to as high as $1,227.65 an ounce yesterday, the highest level since July 1.

“People are getting worried about the economy again, more worried than a month ago,” Ghee Peh, Hong Kong-based head of Asian mining research with UBS Securities Asia Ltd. “Gold will extend its rally.”

Gold has strengthened 12 percent this year, reaching a record $1,265.30 an ounce in June, as investors sought protection against financial turmoil and currency debasement. The metal is on course for its 10th annual advance, the longest winning streak since at least 1920.

Economists said reports today will show German investor confidence deteriorated, U.K. inflation slowed and Canadian factory sales declined. Bank of Korea Governor Kim Choong Soo said today international economic uncertainty may stoke turbulence in global financial markets.

Markets “may prove turbulent in the future” and there may be “heightened” volatility in business activity in key nations because of uncertainty from slowdowns in the U.S. and China and Southern Europe’s sovereign-debt woes, Kim said in Seoul.

‘Strong Support’

Gold will trade between $1,220 and $1,230 an ounce today, said Ong Yi Ling, Singapore-based investment analyst with Phillip Futures Pte Ltd.

“The recent rally might induce some profit-taking activity among investors who have positions in gold when it was at sub- $1,200 prices,” she said. “However, the price level of $1,220 an ounce forms a strong level of support.”

Bullion may rally to a record $1,300 an ounce in six months, driven by low interest rates and the prospect of renewed quantitative easing in the U.S., Goldman Sachs Group Inc. said last week.

Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, were unchanged at 1,286.7 metric tons yesterday, the company’s website showed. Holdings reached an all-time high of 1,320.44 tons in June.

Silver for immediate delivery was little changed at $18.405 an ounce, platinum gained 0.2 percent at $1,537.10 an ounce and palladium was little changed at $483.45 an ounce.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net