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Gold Futures Rise to Record $1,009 on Bear Stearns Bailout
Bloomberg
By Pham-Duy Nguyen
March 14, 2008

March 14 (Bloomberg) -- Gold surged to a record $1,009 an ounce in New York as the Bear Stearns Cos. bailout and a plunging dollar increased demand for the precious metal. Silver also gained.

Bear Stearns got emergency funding from JPMorgan Chase & Co. and the New York Federal Reserve. The securities firm said its cash position had "significantly deteriorated." The dollar fell to a record against the euro and a 12-year low against the yen. Gold has jumped 19 percent this year, while the Standard & Poor's 500 Index fell 13 percent.

"Gold's assault on $1,000 is happening for a good reason," said James Turk, founder of GoldMoney.com, which had $337 million in gold and silver in storage for investors at the end of February. "Gold is not only an inflation hedge, it's a catastrophe hedge. Gold is becoming increasingly important as the credit crunch continues to spiral out of control."

Gold futures for April delivery rose $5.70, or 0.6 percent, to $999.50 an ounce on the Comex division of the New York Mercantile Exchange. The price reached the highest ever for a most-active contract at 10:45 a.m., topping yesterday's record of $1,001.50. The metal has tripled in the past five years.

Silver futures for May delivery climbed 23.5 cents, or 1.2 percent, to $20.655 an ounce. The price has gained 38 percent this year.

"Gold at $1,000 is a clear sign of a lack of confidence in the dollar and the Fed's handling of monetary affairs," said Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland.

Housing Slump

The worst housing slump in 25 years and more than $181 billion in bank losses and writedowns have forced the Federal Reserve to cut interest rates five times in six months. The federal-funds rate is at 3 percent, down from 5.25 percent in mid-September. The dollar is down 6.3 percent against a weighted basket of six currencies this year.

"The dollar and more shoes to fall in the credit arena will keep gold in demand as an alternative asset," said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey.

Shares of Bear Stearns, the second-largest underwriter of U.S. mortgage bonds, plunged as much as 53 percent in New York Stock Exchange composite trading.

The Fed earlier this week said it would lend banks $200 billion in exchange for mortgage-backed debt.

`Store of Value'

"Many investors are unwilling to sit down and wait to see if the monetary experiment, which is moving in new directions, works," said Shayne McGuire, director of global research at Teacher Retirement System of Texas, the eighth-largest U.S. pension fund. "They are taking cover in assets recognized over centuries as stores of value that cannot be printed."

The metal pared gains as the dollar reduced losses against the euro, which earlier climbed to a record $1.5688. This week, gold gained 2.6 percent, and silver climbed 2 percent.

"With the dollar making a little bit of a comeback, you're seeing some gold investors take money off the table," said Nick Ruggiero, a trader at Eagle Futures Inc. in New York.

Gold has rallied for seven straight years, rebounding from a 20-year low of $253.20 on July 20, 1999, as mine supply has remained low and investment demand soared.

The StreetTracks Gold Trust, the biggest exchange-traded fund backed by bullion, began trading in November 2004 and reached a record 655 metric tons on March 10.

Compared with government holdings, the ETF would rank eighth behind Japan, according to data from the producer-funded World Gold Council. The U.S. is the biggest holder with 8,133 metric tons, or 78 percent of its currency reserves, in gold.

Mine Output

World gold-mine production declined 1.4 percent last year to 2,444 metric tons, an 11-year low, according to researcher GFMS Ltd. Power disruptions in South Africa, the world's biggest precious-metals producer, may continue to support bullion prices, analysts say.

Still, high prices may discourage purchases by jewelers, the biggest buyers. Jewelry demand dropped 17 percent in the fourth quarter following a 15 percent gain in prices in the previous three months, data from the World Gold Council show. About 68 percent of gold demand last year came from jewelers.

Imports by India, the world's biggest gold buyer, plunged 81 percent to 10.2 metric tons in February from a year earlier, according to the Bombay Bullion Association Ltd.

UBS AG, Europe's largest bank by assets, said on March 4 that gold would rise to $1,025 in a month and $1,075 in three months.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Last Updated: March 14, 2008 14:32 EDT

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