Gold climbed for a third day this week on speculation that the world's central banks will keep interest rates low for an extended period, boosting the appeal of the metal as an alternative investment.
Today, the European Central Bank kept its benchmark interest rate at 1 percent, the lowest ever, to help revive the region's economy. The Federal Reserve has kept the U.S. benchmark from zero percent to 0.25 percent since December 2008. Gold has gained 14 per cent this year, reaching a record $US1266.50 an ounce in June.
"The markets are anticipating low rates for a protracted period and perhaps another round of quantitative easing and stimulus," said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. "This will let the metals move up. The currencies can stay flat, and gold can still rally."
Gold futures for December delivery rose $US5.30, or 0.4 per cent, to settle at $US1253.40 on the Comex in New York. Yesterday, the price reached $US1256.60, the highest level for a most-active contract since June 28.
The European Union plans to limit so-called naked-short sales of shares and government debt which it says can cause a "disorderly market and possible systemic risks." That may spur a shift to gold by investors, said Daniel Brebner, an analyst at Deutsche Bank AG.
'Usefulness as Hedge'
"It underscores gold's usefulness as a hedge against uncertainty and as a tool to preserve wealth," Brebner said from London. In a naked-short sale, the seller has no intention of making delivery of the shares when entering the transaction.
Holdings in 10 exchange-traded products tracked by Bloomberg rose to a record yesterday. Investment in ETFs backed by bullion in the last quarter was the second-highest ever, according to the producer-funded World Gold Council.
Investors should buy gold for "insurance" purposes, said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. "We've absolutely no interest at all in being short of gold."
