gold set to become even scarcer, page-3

prepare for us$600 Gold Gains, Approaches $600, as Investors Boost Bets on Precious Metals
April 3 (Bloomberg) --

Gold prices in New York rose as investors bet precious metals will outperform U.S. stocks and bonds, pushing the precious metal close to $600 an ounce for the first time since 1981.

Gold has jumped almost $100 an ounce, or 19 percent, since the end of November. The Standard & Poor's 500 Index has climbed 4.6 percent, and holders of the benchmark 10-year U.S. Treasury lost 1.6 percent in the same period.

``People are piling in'' for gold, said Duncan Cruickshank, an analyst at Commodity Warrants Australia Pty in Sydney. ``People will make money even if they buy at these levels.'' He predicted the precious metal will reach $600 this week.

Gold futures for June delivery rose $7.60, or 1.3 percent, to $594.30 an ounce on the Comex division of the New York Mercantile Exchange. The most-active contract last breached $600 on Jan. 6, 1981. Futures for August delivery have climbed above $600.

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

Hedge-fund managers and other large speculators increased their net-long position in Comex gold in the week ended March 28, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 120,586 contracts, the Washington- based commission said in its Commitments of Traders report on March 31. Net-long positions rose by 16,322 contracts, or 16 percent, from a week earlier.

Euro Gains

Gold gained as the dollar dropped against the euro, extending a first-quarter decline. Manufacturing in the European Union expanded at the fastest pace in more than five years in March, said NTC Research, which compiles the measure for Royal Bank to Scotland Plc.

Gold moved in tandem with the euro from 2002 to 2004. Last year, gold gained in all currencies, paced by a 36 percent gain in euro and yen. The dollar gained 14 percent against the euro in 2005.

``A strong growing euro-zone is negative for the dollar,'' said Michael Widmer, an analyst with Macquarie Bank Ltd. in London. ``We are seeing a shift to dollar weakness, and some of the traditional relationship between gold and the dollar is coming back.''

Investors are also buying gold to guard against accelerating energy prices, which is fueling inflation, traders said. Crude oil rose to a two-month high after Iran, the world's fourth-biggest supplier, tested its fastest torpedo, escalating a dispute about the country's nuclear-research program. Prices are up 18 percent from a year ago.

Monetary Policies

Some investors buy gold in times of inflation to preserve purchasing power. Gold surged to $873 an ounce in 1980 when consumer prices jumped more than 12 percent.

Gold and precious metals have gained as worldwide interest rates remain too low to contain inflation, said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.

``Despite 15 rate hikes on the part of the Fed, several by the ECB and expectations of future tightening in Japan, global monetary policies remain accommodative,'' Darda said.

Some analysts said gold may fall as high prices deter jewelers, who accounted for 73 percent of purchases last year.

``Investment jewelry demand, mainly in India and the Middle East, has been the most affected by the price surge,'' Virtual Metals, a London-based consulting company, said today in its Yellow Book, a bi-annual review of the gold market.

Gold production will exceed demand this year amid the decline in purchases by jewelers, Virtual Metals said. Gold may move into a surplus of 422 metric tons in 2006 from a shortfall of 310 tons last year, Virtual Metals said.

Silver for May delivery rose 24.5 cents or 2.1 percent to $11.764. Prices earlier reached $11.815, the highest since September 1983.