Gold Climbs to One-Month High as European Debt-Crisis Concern Spurs Demand

Oct. 27 (Bloomberg) -- Gold futures advanced to a one-month high, extending the longest rally since August, as delays in resolving Europe’s debt crisis spurred demand for the precious metal as a protection of wealth.

French President Nicolas Sarkozy and German Chancellor Angela Merkel want to meet Greek creditors in Brussels tonight to break a deadlock of the terms of a debt writedown, said a person familiar with the matter. Financial markets face “catastrophic risk” without a plan to rein in fiscal turmoil, U.S. Treasury Secretary Timothy F. Geithner has said. Gold has rallied 6.9 percent in the past four sessions.

“There is no quick fix to European debt issues, so gold’s crisis-hedge status is driving the metal higher,” Scott Gardner, the chief investment officer at Verdmont Capital SA in Panama, said in an e-mail.

Gold futures for December delivery gained 1.4 percent to settle at $1,723.50 an ounce at 1:41 p.m. on the Comex in New York, after earlier climbing to $1,728, the highest since Sept. 23. The four-session rally is the longest since Aug. 22.

The metal plunged as much as 20 percent since reaching a record $1,923.70 an ounce on Sept. 6, entering a bear market when prices reached an 11-week low of $1,535 on Sept. 26. Since then, the commodity has rallied 12 percent and is headed for an 11th straight year of gains as investors seek to diversify away from equities and some currencies.

“Gold appears to have now found support in the low $1,600s, so investors are coming back into the market,” Gardner said.

Bank Reserves
The Bundesbank’s gold reserves may be used as collateral in the event that the European Financial Stability Facility can’t meet its payment obligations, German newspaper Bild reported, without saying how it obtained the information. Germany is the world’s biggest bullion holder after the U.S., with 3,401 metric tons in reserves, World Gold Council data show.

“The size of the debt issues are unlikely to go away, regardless of what policy makers decide,” analysts at TheBullionDesk.com in London wrote today in a report. “Given this uncertainty, we are not at all surprised gold is attracting fresh safe-haven buying.”

The European summit caps six days of haggling among the region’s leaders over Greece’s second bailout, the recapitalization of banks and the retooling of the 440 billion euro ($612.8 billion) rescue fund. A finance chiefs’ meeting today was canceled because the bank recapitalization issue can’t be decided before other elements of the rescue package, a person familiar with the matter said on condition of anonymity.

ETF Holdings
Holdings in exchange-traded funds backed by gold gained 10.6 tons to 2,231.8 tons yesterday, the highest since Sept. 23, data compiled by Bloomberg show. Assets reached a record 2,299.8 tons on Aug. 8.

Silver futures for December delivery rose 0.8 percent to close at $33.31 an ounce on the Comex. The metal is up 7.7 percent this year.

On the New York Mercantile Exchange, platinum futures for January delivery gained 1.8 percent to $1,597.20 an ounce. Palladium futures for December delivery fell 0.9 percent at $646.05 an ounce, ending a three-session rally.