Gold May Advance in London on Investors’ Demand for a Haven

Feb. 16 (Bloomberg) -- Gold, little changed today in London, may advance as investors buy the metal to diversify portfolios and preserve their wealth as the global economy sags.

The Group of Seven’s finance ministers said after talks in Rome yesterday that a “severe” economic downturn will persist for most of 2009. Japan’s economy shrank at an annual 12.7 percent pace last quarter, the most since 1974.

Bullion for immediate delivery added $2.20, or 0.2 percent, to $943.90 an ounce at 5:25 p.m. local time. April futures climbed $2.20 to $944.40 in electronic trading on the Comex division of the New York Mercantile Exchange. The U.S. market is closed today for a holiday.

“Gold’s ability to close last week above $930 was encouraging,” James Moore, an analyst at TheBullionDesk.com, wrote today in a note. “We expect gold to see further inflows” following “renewed banking and economic jitters.”

The metal declined to $942.50 in the afternoon “fixing” in London, used by some mining companies to sell production, from $943 at the morning fixing. Bullion gained 3.3 percent last week and is up 7 percent this year.

Gold may gain for a second straight week as the banking crisis and recession deepen, according to 26 of 32 traders, investors and analysts surveyed from Tokyo to Chicago last week. Five respondents advised selling and one was neutral.

U.K. Contraction

The U.K. economy will shrink 3.3 percent this year, almost twice the pace previously forecast, as the country heads into the worst recession in almost 30 years, the nation’s biggest business lobby said today.

Assets in three of the industry’s largest exchange-traded funds are at all-time highs. ETF Securities Ltd.’s Physical Gold fund rose to 2.299 million ounces on Feb. 13. The SPDR Gold Trust, the biggest ETF backed by the metal, expanded to 985.86 metric tons as of Feb. 13, while Zuercher Kantonalbank’s fund has record assets of 3.734 million ounces.

Gold reached a six-month high of $952.92 in London on Feb. 12.

The metal may remain in a “consolidation phase” today because of the U.S. holiday and after last week’s gains, London- based broker Marex Financial Ltd. said in a report.

“Economic stimulus plans by governments around the world are likely to drive inflation, increasing demand for gold as a hedge,” Marex said. “Governments may continue spending until they see inflation.”

Package Approved

U.S. Congress has given final approval to a $787 billion economic stimulus package and Treasury Secretary Timothy Geithner last week pledged as much as $2 trillion in financing for programs aimed at spurring new lending.

Hedge-fund managers and other large speculators increased their net-long position by 5 percent in New York gold futures in the week ended Feb. 10, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 163,622 contracts on the Comex.

Bullion has climbed 31 percent since October as governments are lowering interest rates and spending trillions of dollars to combat the recession.

“One of the critical factors about gold is that it’s not issued by a central bank,” Charles Kernot, a mining analyst at Evolution Securities in London, said in a Bloomberg Television interview. As governments devalue their currencies, “you want to have a completely independent hedge against that happening and gold really is such an independent hedge. There is still plenty of scope for a further uplift in the metal’s price.”

Among other metals for immediate delivery in London, silver slipped 0.7 percent to $13.59 an ounce. Platinum rose $2.25 to $1,066.50 an ounce, and palladium was 0.6 percent lower at $215.25 an ounce.

Crude Oil Trades Near $37 on Slowing Global Demand for Fuel

Feb. 17 (Bloomberg) -- Crude oil traded near $37 a barrel in New York on speculation a deepening recession in Europe and Asia will stifle demand for energy and fuel.

Brent crude, a benchmark for European, Africa and Russian grades, fell to a three-week low yesterday after U.K. bank stocks dropped and the Bank of England said the economy’s first quarter contraction may match last quarter’s 1.5 percent decline. Japan, the world’s third-largest oil consumer, yesterday said its economy contracted the most since 1974 in the fourth quarter.

“The market data from the U.S. and the other major economies is not painting a picture of an imminent recovery,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “The Japanese data was pretty bad.”

Crude oil for March delivery traded at $36.85 a barrel, down 68 cents from the Feb. 13 close, in electronic trading on the New York Mercantile Exchange at 10:38 a.m. in Sydney. Floor trading was closed for the Presidents’ Day holiday in the U.S. and yesterday’s transactions will be booked today for settlement.

Brent crude for April settlement fell $1.53, or 3.4 percent, to $43.28 a barrel on London’s ICE Futures Europe exchange yesterday. It slumped as much as 3.7 percent as the U.K.’s FTSE 100 Index fell to a two-week low, led by Lloyds Bank Plc.

“What is really driving it lower is the actual reduction in demand,” Peyton Feltus, president of Randolph Risk Management Inc. in Dallas, said yesterday. “The front-months are still taking the brunt of it.”

The March Nymex oil contract expires on Feb. 20. The more actively traded April contract was at $41.50 today, down 47 cents from last week’s close.

Japan, U.K.

Japan’s gross domestic product contracted at an annual 12.7 percent pace in the fourth quarter of 2008, the Cabinet Office said yesterday. That followed a 13.9 percent drop in exports from the third quarter.

The U.K. economy will probably contract 3.3 percent in 2009, up from the 1.7 percent decline predicted in November, the Confederation of British Industry said yesterday. The nation is headed for its worst recession in almost 30 years.

World oil demand may not rebound until 2010, when it may begin rising by about 1 percent a year through 2013, International Energy Agency Executive Director Nobuo Tanaka said in London yesterday.

Production cuts by the Organization of Petroleum Exporting Countries and cold weather are helping rebalance the oil market, bringing the low point for prices closer than previously expected, Goldman Sachs Group Inc. analysts said yesterday.

“As a result, the bottoming in prices and time spreads could be closer than we originally expected,” Goldman analysts including Giovanni Serio and Jeffrey Currie said in a report.

New York crude oil fell to $32.40 a barrel Dec. 19, the lowest for the near-month contract since February 2004.

Yen Rises as G-7 Says Slump to Persist, Japan’s Economy Shrinks

Feb. 16 (Bloomberg) -- The yen rose after finance ministers from the Group of Seven nations said the “severe” global slump will persist for most of 2009 and Japan’s economy shrank by the most since 1974, spurring investors to sell riskier assets.

The yen snapped two days of losses against the dollar and the euro as G-7 officials avoided making any statement in support of efforts by Japan to weaken its currency. The pound fell versus the dollar after the Confederation of British Industry said the U.K. economy will contract at almost twice the pace previously forecast this year. The euro also dropped against the dollar.

“Investors are starting to price in the prospect of this recession lasting longer than previously expected,” said Lee Hardman, a currency strategist in London at Bank of Tokyo- Mitsubishi Ltd., a unit of Japan’s largest publicly traded bank by assets. “The yen will remain quite firm in the next three months before it starts to drop off.”

The yen dropped to 117.21 per euro as of 4:51 p.m. in New York from 118.37 on Feb. 13. The yen gained to 91.77 against the dollar, from 91.93. The dollar strengthened to $1.2770 per euro, from $1.2862.

Japan’s currency may appreciate to 110 per euro in the next three months as the European economic outlook worsens, Hardman said. Japan’s own poor economy will drive currency to 100 versus the dollar by year-end, he said.

‘Disorderly Movements’

“Market reaction to the G-7 has been generally one of disappointment,” Geoff Kendrick, a senior currency strategist at UBS AG in London, wrote in a research note today. “Further follow-through in terms of dollar and yen strength should be expected.”

The G-7 repeated its message that “excess volatility” and “disorderly movements” in exchange rates must be avoided. The group accounts for about two-thirds of the world economy and is composed of the U.S., Japan, Germany, U.K., Italy, Canada and France.

Exchange-rate movements may be volatile today as a national holiday in the U.S. reduces trading volumes, said Masashi Kurabe, head of currency sales and trading at Bank of Tokyo-Mitsubishi in Hong Kong.

Japan’s economy shrank 12.7 percent in the fourth quarter from a year earlier, the Cabinet Office said today. That’s the third consecutive quarter gross domestic product has contracted.

The British pound fell against the dollar after the CBI, Britain’s biggest business lobby, said gross domestic product will shrink 3.3 percent this year, almost twice the 1.7 percent pace previously forecast. By the end of 2009, the economy will have contracted for six consecutive quarters, it said.

BNP Paribas Forecast

“The dollar will benefit from renewed growth pessimism,” analysts led by Hans-Guenter Redeker, global head of currency strategy at BNP Paribas SA in London, wrote today. “Global economic weakness creates dollar demand via de-leverage and reversing cross border flows.” The dollar will rise to $1.22 per euro and 95 yen by the end of September, BNP Paribas said.

The MSCI World Index dropped 0.7 percent and the Dow Jones STOXX 600 Index of European shares fell 1.2 percent. Japan’s current-account surplus makes the yen attractive to investors in times of turmoil, as it means the country doesn’t rely on overseas lenders.

The pound was also hurt after the G-7 finance chiefs avoided any reference to the U.K. currency.

There was “no mention, discussion of the pound” at the G-7 meeting, Callum Henderson, head of global currency strategy, and Thomas Harr, senior currency strategist, at Standard Chartered Plc in Singapore, wrote in a research note today. “This may prove negative for sterling.”

The British currency dropped to $1.4267 from $1.4355. It rose to 89.49 pence per euro.

Euro ‘Peripherals’

The euro weakened amid growing concern Ireland may default on its national debt. Credit-default swaps on the nation’s five- year sovereign debt jumped 49 basis points on Feb. 13 to a record 377 basis points, according to CMA Datavision prices. That’s 18 basis points more than Costa Rica’s.

The rising cost of insuring against default by a “peripheral” European government “remains an important background negative for the euro,” Steven Pearson, a strategist in London at Merrill Lynch & Co., wrote in a note today.

Palm Oil Declines as Demand Wanes After Rally to Two-Week High

Feb. 16 (Bloomberg) -- Palm oil futures dropped in Malaysia as demand diminished after the vegetable oil’s rally last week to a two-week high.

April-delivery futures dropped 3.4 percent to 1,928 ringgit ($417) a ton on the Malaysia Derivatives Exchange. Earlier, the contract rose above 2,000 ringgit for the first time since Jan. 7.

“I don’t understand why palm oil should rise above 2,000 ringgit” a ton, said Ben Santoso, an analyst with DBS Vickers Securities Singapore. Higher prices may prevent planters from cutting down old palms, which would have reduced supply and kept prices higher, he said.

Malaysia’s palm oil exports dropped 13 percent in the first 15 days of this month from the same period in January, Societe Generale de Surveillance, an independent cargo surveyor. A total of 494,172 tons were tracked Feb. 1-15, SGS said today.

Palm oil prices have risen 12 percent in the past two weeks on concern smaller soybean crops in Brazil and Argentina, the top exporters of the vegetable oil made from the oilseed, will lower supplies at a time when oil palms in Malaysia and Indonesia are stressed from last year’s record output.

Farmers in the U.S., the world’s biggest grower of soybeans, may shift acreage to the oilseed to benefit from the shortfall in South America, likely lowering prices, Santoso said.

“The highest risk now is from the U.S. and whether they will make the shift,” he said. “If there is some shift, then there will be some correction to soybean prices in the second quarter. It’s still too early to say.”

The U.S. will announce soybean crop estimate next month.

Soybean oil for March delivery dropped 0.3 percent last week to 33.3 cents a pound in Chicago. That left it 32 more expensive than palm oil, compared with a six-month average of 58 percent, according to Bloomberg data.

The U.S. markets are closed today for a public holiday.