Gold Rises to 6-Month High on Metal's Appeal as Inflation Hedge...

Gold Rises to 6-Month High on Metal's Appeal as Inflation Hedge

By Pham-Duy Nguyen

Feb. 9 (Bloomberg) -- Gold prices in New York rose to the highest in more than six months as a jump in energy costs boosted the appeal of the precious metal as an inflation hedge.

Gold sometimes moves in the same direction as the price of oil, which today rose above $60 a barrel for the first time in a month. Gold reached a 26-year high of $732 an ounce in May, and oil climbed to a record in July.

``Oil helped pushed gold higher,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``The market is bullish.''

Gold futures for April delivery rose $9.50, or 1.4 percent, to $672.30 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier reached $673.90, the highest since July 17. The metal is up 3.2 percent this week.

Oil reached $60.80 a barrel, the highest since Jan. 3, after Occidental Petroleum Corp. suspended most production at the Elk Hills field in California. Oil is up 16 percent in the past three weeks as freezing weather in most of the U.S. sparked demand for heating fuel.

``Crude oil over $60 a barrel is lending assistance to gold indirectly,'' said Jon Nadler, an investment-products analyst at Montreal-based Kitco Minerals & Metals Co.

Gold also attracted buyers after prices topped $667, said Michael Guido, director of hedge-fund marketing at Societe Generale SA in New York.

``This move is about a technical formation and investor interest,'' Guido said. ``Targets are being readjusted to $685 and $700.''

Gold has risen in five consecutive weeks after prices tumbled 4.9 percent in the week ending Jan. 5.

`Funds Jumping'

``A lot of funds are jumping in and buying,'' said Walter Otstott, a senior commodity broker at Dallas Commodity Co. in Dallas. ``I anticipate a run to $700 before you get any significant degree of profit taking.''

Gold's performance in January attracted investors who were tentative, Otstott said. Last month, the metal rebounded above the December highs after falling below the lows.

``It's called an outside reversal month,'' Otstott said. ``It gets a lot of people like me who are waiting for gold to prove itself more excited. It changes their attitude and they start to add on more positions.''

Investment in the StreetTracks Gold Trust, an exchange- traded fund backed by physical gold and traded on the New York Stock Exchange, reached $9.7 billion on Feb. 8, the highest since the fund began trading in November 2004.

``You have money being put to work on both the equity side and the physical side,'' Guido said.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at [email protected] .

Last Updated: February 9, 2007 14:25 EST