Gold Poised for 10th Annual Increase on Inflation, Currencies

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Gold is poised for a 10th annual gain, as investors seek to protect their wealth against accelerating consumer prices and declining currencies.

“Gold’s rally will continue next year as inflation pressures continue to build and as currencies remain weak,” said Li Ning, an analyst at China International Futures (Shanghai) Co. “The global economy is recovering but we’re not completely out of the woods quite yet and gold’s safe-haven status will increase investment demand.”

Gold has jumped 28 percent this year after governments spent trillions of dollars and kept interest rates low to bolster economies after the worst global recession since World War II, fueling inflation and driving currencies lower. Bullion has also reached all-time highs in British pounds, euros, Swiss francs and yen this year.

Assets of gold in exchange-traded products expanded 17 percent this year, reaching 2,097.49 tons yesterday, according to data compiled by Bloomberg from 10 providers. Surging demand drove prices to a record $1,431.25 an ounce on Dec. 7.

Gold imports by China, the world’s second-largest consumer and biggest producer, jumped almost fivefold in the first 10 months from the entire amount shipped in last year, the Shanghai Gold Exchange said, driving prices to record levels. Bullion on the Shanghai Futures Exchange reached 314.00 yuan a gram on Nov. 9, the highest level since the exchange started trading the metal in January 2008.

China is “on track” to replace India as the largest gold consumer at a faster rate than the market had anticipated, according to UBS AG analyst Edel Tully. Last month, the State Administration of Foreign Exchange and the China Securities Regulatory Commission approved the first local fund to invest in overseas exchange-traded funds backed by gold.

Source: Bloomberg Businessweek

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