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Published
May 4, 2010
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Gold rises above $1,190 on sovereign risk fears

By
Reuters
Published
May 4, 2010

(Reuters) - Gold hit five-month highs above $1,190 an ounce on Tuesday 4 May and record peaks in euro, sterling and Swiss franc terms as fears Greece's debt woes could spread to other euro zone economies prompted haven buying of the metal.



Spot gold hit a peak of $1,191.90 an ounce and was bid at $1,188.40 an ounce at 1320 GMT (9:20 a.m. EDT), against $1,181.40 late in New York on Monday 3 May.

Investors are concerned a 110 billion euro ($146.5 billion) bailout for debt-laden Greece announced on Sunday 2 May may not be enough to resolve its financial crisis, and that other euro zone economies like Spain may also be hit by debt problems.

"(There) seems to be an ongoing theme of safe haven buying as the market remains unconvinced about governments' efforts to contain the sovereign debt problems in Europe," said Ole Hansen, senior manager at Saxo Bank. "We have seen spreads to German bunds widening again today on Spain, Italy and Portugal."

"Fear and momentum are two very forceful factors when markets move," he added. "When the two come together, it is like a tidal wave, difficult to stop."

The premium investors demand to hold peripheral euro zone government bonds rose and the cost of insuring against defaults was higher as worries remained over a bailout plan for Greece and fears of contagion to other issuers.

These fears sparked a cross-currency rally in gold prices. Gold priced in euros, sterling and Swiss francs hit record highs on Tuesday 4 May.

Japanese yen-priced gold reached its highest in 27 years, according to Reuters data, while gold priced in Canadian and Australian dollars and South African rand hit its highest since December.

ALTERNATIVE CURRENCY

"Gold's (varied) roles as a commodity, an alternative currency and a safe-haven asset are pulling more in the same direction than they have all year," said UBS in a note.

"We would look for a test of December's record high of $1,226.44 so long as the threat of sovereign aftershocks in the euro zone persists."

U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $6.00 to $1,189.30 an ounce.

The metal largely shrugged off gains in the dollar, which rose nearly 1 percent versus the euro as concern grew over whether the Greek aid package will work.

The dollar also climbed against a basket of six currencies after U.S. data showed factories running at their fastest pace in nearly six years on Monday 3 May.

Other precious metals, which are more industrial in use than gold, declined on Tuesday 4 May, tracking losses in base metals and other industrial commodities like crude oil.

Silver prices were at $18.58 an ounce against $18.77. Platinum was at $1,702 an ounce against $1,720, while palladium was at $523.50 against $539.

The platinum group metals are particularly exposed to the recovery in the global automobile sector, as carmakers account for more than half of demand for the autocatalyst materials.

Data showed U.S. auto sales rose about 20 percent in April from recession-stunted results a year earlier, reflecting a still-gradual recovery in the economy. The figures were not as robust as some had hoped.

(Editing by William Hardy)

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