Gold May Advance to Near Record as Slower Factory Growth Increases Demand

By Glenys Sim - Aug 2, 2011

Gold advanced toward a record as concern that global economic growth may be slowing overshadowed a U.S. debt deal reached in time to avert a default, spurring demand for wealth protection.

Immediate-delivery gold, which reached an all-time high of $1,632.80 an ounce on July 29, gained 0.3 percent to $1,623.65 at 1:16 p.m. in Singapore after losing 0.6 percent yesterday. Holdings in exchange-traded products rose to 2,153.574 metric tons yesterday, the highest level ever, Bloomberg data show.

Manufacturing indexes from the U.S. to Europe and China declined in July, raising concern that the global recovery is losing momentum. Still, spot gold dropped for the first time in three days yesterday after the House of Representatives passed the measure to raise the U.S. debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion or more. The plan goes to the Senate for a final vote today.

“Increasing the debt ceiling is not going to make the debt go away, while the debt problems in Europe aren’t going to be resolved overnight, and we’re seeing all these getting reflected in the weaker economic numbers,” said Zhang Yingying, an analyst at Galaxy Futures Co., a brokerage that’s 16.7 percent owned by the Royal Bank of Scotland Group Plc.

Gold for December delivery in New York rose 0.3 percent to $1,626 an ounce, after futures reached a record $1,637.50 on July 29. Spot silver gained 1 percent to $39.6825 an ounce.

The Institute for Supply Management said yesterday that its manufacturing index dropped to 50.9 last month from 55.3 in June, expanding by the slowest pace in two years. In China, the Purchasing Managers’ Index was at 50.7 compared with 50.9 in June, while a manufacturing gauge in the euro region dropped to 50.4 from 52, reports yesterday showed.
Slowing Growth

“There are concerns that the U.S. government spending cuts could be a drag on the economy at a time where growth is already slowing,” Tobias Merath, head of global commodity research at Credit Suisse AG wrote in a note today.

While the immediate economic impact from the spending cut is likely to be small, it will add to a reduction in growth next year of 1.5 percentage points coming from the expiration of past stimulus programs, according to economists at JPMorgan Chase & Co. and Deutsche Bank Securities.

Job-creation efforts have already been hampered by slowing growth. Employers in the U.S. added 18,000 jobs in June, the fewest in nine months, compared with a forecast of an increase of 105,000 in a Bloomberg News survey. The Labor Department may say on Aug. 5 that nonfarm payrolls climbed 85,000 in July, a separate survey showed.

The Bank of Korea bought 25 tons of gold over a one-month period from June to July, lifting its gold reserve to 39.4 tons, the central bank said in an e-mailed statement yesterday. It declined to comment on the price of purchases and future plans for additional purchases.

Cash platinum was little changed at $1,790.50 an ounce while palladium rose 0.4 percent to $832.25 an ounce.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net
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