Gold rose for a third day on speculation that the biggest monthly drop since December will encourage investors to stock up on the precious metal as a haven.
The 5 per cent price drop in July is the first monthly decline since March, and gold has fallen 6.5 per cent from its June 21 record of $US1266.50 an ounce. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, have declined 1.5 per cent this week, heading for the biggest weekly drop since April 2009.
''Gold is beginning to catch some traction,'' said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. ''The correction may have run its course and for longer-term holders, this may be a buying opportunity.''
Gold futures for December delivery rose $US12.70, or 1.1 per cent, to settle at $US1183.90 on the Comex in New York, the biggest gain since July 13. The most-active contract ended the week down 0.3 per cent.
The euro headed for the first monthly gain against the dollar since November. Gold also reached records last month in euros, British pounds and Swiss francs as investors sought a haven during Europe’s sovereign-debt crisis.
''We view the latest decline in the gold price as temporary,'' analysts at Deutsche Bank said today in a report. ''This weakness has been driven more by liquidation in net length among the investor community than a structural change in fundamentals.''
Concern for deflation
Gold may be one of the best assets to own in a deflationary environment, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.
Federal Reserve Bank of St. Louis President James Bullard said yesterday that the US economy may be headed into a deflationary period similar to the one that gripped Japan.
''It’s looking like deflation is more of a risk now than inflation,'' Kaplan said. ''In a deflationary period, gold will go down the least.''
The Fed has kept the benchmark interest rate between zero and 0.25 per cent since December 2008 to spur growth, which fueled speculation that the economy will face rampant inflation as it emerges from the recession.
''Gold won’t fall out of bed under any scenario in the future,'' Klopfenstein of Lind-Waldock said. ''There are a lot of macro headwinds. Low rates will spark inflation down the line, once we get past deflation.''
Silver futures for September delivery rose 38.6 cents, or 2.2 per cent, to settle at $US18.003 an ounce on the Comex. The metal is down 0.5 per cent this week and 3.8 per cent in July.
Platinum futures for October delivery gained $US13.40, or 0.9 per cent, to settle at $US1576.80 an ounce on the New York Mercantile Exchange. The price gained 2.2 per cent this week and 2.6 per cent in July.
Palladium futures for September delivery advanced $US8.80, or 1.8 per cent, to settle at $US500 an ounce on the Nymex. The metal gained 7.1 per cent this week and 13 per cent this month.
