INTERNATIONAL. The price of gold closed higher on Friday after hitting a new record high above US$1,100 an ounce following a report showing the US unemployment rate topped 10% in October, raising the metal's appeal as a safe asset.

Reports of Sri Lanka purchasing the precious metal also added to gold's momentum to cap a week that saw gold break out of its recent yo-yo consolidation phase. Gold had reached a record high of US$1,087.80 on Tuesday as the IMF said it had sold 200 tonnes of gold to India's central bank over a two-week period last month for US$6.7 billion to bolster its finances.

On the Comex division of the New York Mercantile Exchange, December gold futures settled US$6.4 higher at US$1,095.70 an ounce, for a weekly increase of 5.3%, ranging from US$1,086.50 to a new record of $1,101.90.

Spot gold closed US$7.40 higher or 0.68% at US$1,096.9, for a weekly gain of US$52.20, or 5%.

Gold has now gained in nine out of the past eleven weeks.

The yellow metal rose 5% this week, 5.29% in the last 30 days, by 8.7% in the quarter to the end of September and 48.85% year-on-year.

The US economy lost 190,000 jobs in October, according to the latest figures from the Labor Department.The higher-than-expected figures took the jobless rate from September's figure of 9.8% to 10.2%, which was the highest level since April 1983.

"Gold rallied early on the unemployment numbers being higher than expected. It fueled thoughts of additional stimulus and reinforced the concept that the Fed will not be able to raise rates any time soon," Frank McGhee, head precious metals trader at Integrated Brokerage Services, told Reuters.

The number of the unemployed rose 558,000 to 15.7 million. The US has now shed 4.7 million jobs since the start of 2009.

"The Central Bank of Sri Lanka has announced that it is buying gold to diversify its reserves," industry body the World Gold Council (WGC) said in a statement issued before gold struck a record high above US$1,1100.

"Over the past year central banks, which have been net sellers of gold are now a new and increasingly important source of demand," WGC chief executive Aram Shishmanian said in the council's statement.

"This latest announcement demonstrates that many central banks are reassessing their reserve asset management policies."

"We have been fairly strong accumulators of gold reserves over the past few months," said Sri Lankan central bank chief Ajith Nivard Cabraal to Reuters on Thursday in an interview from India. "We haven't stopped yet," Cabraal added.

Running some US$4.8 billion in foreign reserves, Cabraal refused to say what proportion is now held in gold.

The US dollar declined against the yen and the euro over worries about the US economy following the jobs figures.

The metal has advanced 24% this year as the Dollar Index, which measures the greenback’s performance against six major currencies, has lost 6.8%.

“The reason gold is faring so well is that there is no consensus as to what will replace the dollar. Uncertainty is what will drive gold higher,” Tom Hartmann, an AltaVest Worldwide Trading analyst in California, told Bloomberg.

The yellow metal has traditionally shared a strong inverse relationship with the greenback, while also being a useful hedge against rising consumer prices.

Gold, up 24% this year, has outperformed US stocks and bonds as investors seek to protect their wealth against currency debasement and an inflation threat. Returns on benchmark 10-year US Treasury notes have fallen 7.9% this year, Merrill Lynch & Co. indexes show. The Standard & Poor’s 500 Index of US shares is up 16% in 2009.

Gold and other commodity prices have surged in recent months amid a move away from the dollar, which has been slumping. The move accelerated last month on a report that Gulf states may stop using the greenback for oil trading.

The metal is also winning support from fears over a possible spike in inflation, as gold is widely regarded by investors as a safe store of value, industry experts said this week.

"Although it's difficult to predict in the short term, the overall picture is very healthy," Mark Lynam, an executive for AngloGold Ashanti -- the world's third largest gold producer -- told the London Bullion Market Association annual conference in Edinburgh.

A Bloomberg survey showed gold may advance to a fresh record on speculation that central banks and investors will purchase the metal to hedge against a declining dollar.

Seventeen of 23 traders, investors and analysts surveyed by Bloomberg, or 74%, said bullion would rise next week. Four forecast lower prices and two were neutral.

Traders and mining executives tipped China, Saudi Arabia and Middle Eastern sovereign wealth funds as candidates to snap up the rest of the gold the IMF plans to sell.

"Central banks in India and China will be happy to accumulate gold at these levels. I will not be surprised to see even some Southeast Asian banks buying gold," Aaron Smith, Asia head of the US$1.65 billion Superfund, told Reuters.

Central banks will become net purchasers of the metal “over time,” Aram Shishmanian, the World Gold Council’s chief executive officer, said on November 2. 

“Investors waiting for that pullback realize that this train -- Asian banks buying gold -- has arrived at the station and they better get on board now,” Adrian Day, chief executive officer of Adrian Day’s Asset Management told bloomberg. 

“Many investors, especially in the developed world, are underexposed to commodities from gold, metals to energy to agriculture,” said Richard C. Kang, chief investment officer with Emerging Global Advisors.

“They are likely to move this up to somewhere between five to 10% of total portfolio holdings.” Kang who helps manage US$40 million invested in metals, energy and mining funds, told Bloomberg.

“Investors realize that both traditional bond and stock holdings have limited value and cash earns nothing,” Kang told the news provider. “Commodities and especially gold will be seen as a placeholder for cash. Simply replacing gold with the dollar.”

“Fundamentals started it but now we’re into greater crowd psychology,” Kang said. “We can see gold getting to US$1,250 to US$1,350 within six months time and if that happens then US$2,000 is very possible. The same is with oil,”  added Kang.

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

• Top news
• Business News
• Company News