Gold Reaches 3-Month High as Silver Caps Best Rally Since 2011

Feb 12, 2014 2:59 pm ET

Feb. 12 (Bloomberg) -- Gold extended its 2014 rally, climbing to a three-month high as speculation that U.S. stimulus will continue boosted the appeal of alternative assets. Silver rose in the longest run of gains since 2011.

Federal Reserve Chairman Janet Yellen said yesterday that while the recovery in the U.S. labor market is “far from complete,” stimulus would be cut in “measured steps.” Bullion rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.

Gold, which slid the most since 1981 last year as some investors lost faith in the metal as a store of value, rebounded 7.7 percent in 2014 amid a slump in emerging-market currencies and rising physical demand. Bullion settled above its 100-day moving average the previous two days. Fed Bank of St. Louis President James Bullard said today the central bank hasn’t yet taken the “punch bowl” of stimulus away.

“Bullard and Yellen made it clear that the Fed is not in a hurry to end stimulus,” Adam Klopfenstein, a senior market strategist at Archer Financial Services in Chicago, said in telephone interview. “Continued injection of easy money into the system is helping gold.”

Gold futures for April delivery gained 0.4 percent to settle at $1,295 at 2:12 p.m. on the Comex in New York, after reaching $1,296.40, the highest since Nov. 8. Prices capped a sixth session of gains, the longest rally since June 2012.

Silver futures for delivery in March rose 0.9 percent to $20.341 an ounce. The metal posted an eighth consecutive advance, the longest streak since April 2011.

The Fed cut monthly bond buying by $10 billion at each of its past two meetings, leaving purchases at $65 billion. Yellen repeated yesterday the central bank’s statement that asset purchases aren’t on a “pre-set course.” The Bloomberg Dollar Spot Index, a measure against 10 major currencies, was little changed after reaching a four-week low today. Global equities climbed.

Gold, Shares

“Yellen has indicated the Fed will remain supportive to prop up the labor market,” Scott Gardner, who helps manage $400 million at Verdmont Capital SA in Panama City, said in a telephone interview. “This is definitely helping gold, and we are seeing both gold and equities rally on that.”

Bullion jumped more than 500 percent in the 12 straight years of gains through 2012, reaching a record $1,923.70 in September 2011. Prices fell into a bear market in April partly as a rally in U.S. equities cut demand for haven assets.

Gold ETPs

Gold held in exchange-traded products rose for a second day yesterday, increasing 0.4 metric ton to 1,738.3 tons, data compiled by Bloomberg show. The value of the assets tumbled $73 billion in 2013 and the holdings reached a four-year low of 1,736 tons last month. Billionaire John Paulson, the largest holder in the SPDR Gold Trust, the biggest ETP, said Nov. 20 that he personally wouldn’t invest more money into his own gold fund because it’s not clear when inflation will quicken.

This year’s rally may be short-lived, according to Morgan Stanley and Goldman Sachs Group Inc. Morgan cut its 2014 target 12 percent to $1,160 on Jan. 22. Goldman Sachs sees prices at $1,050 in the next 12 months, the bank said in a Jan. 12 report. Prices dropped to $1,181.40, a six month low on Dec. 31.

“People have been reassessing global growth, and this year we have seen some money flow into gold,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets, said yesterday in a telephone interview. “It’s too early to say that it’s a turning point.”

--With assistance from Phoebe Sedgman in Melbourne and Glenys Sim in Singapore. Editors: Millie Munshi, Joe Richter