Gold Gains in London on European Debt Woes, Physical Purchases

Gold gained in London and headed for a second weekly advance on concern about Europe’s debt crisis and increasing physical demand ahead of a religious festival. Standard & Poor’s yesterday downgraded Spain’s credit rating for the third time in three years as slowing growth and rising defaults threaten banks. Nations from China to Brazil are considering increasing the International Monetary Fund’s lending resources to help stem the euro area’s debt crisis, Group of 20 and IMF officials said. Gold is among UBS AG’s three top commodity picks, the bank said today in a report. “Gold remains underpinned by good volumes of physical and retail investment purchases,”James Moore, an analyst at TheBullionDesk.com in London, wrote in a report today. “Following the wash-out of fund and speculation investment longs, the market is well placed to trade higher.” Speculators in U.S. gold futures cut their net-long position, or bets on higher prices, to the lowest since February by Oct. 4, according to data from the Commodity Futures Trading Commission. The Diwali religious festival later this month in India, the biggest bullion buyer, and then the traditional wedding season, may increase demand. European officials are outlining a rescue plan that may include deeper investor losses on Greek bonds, higher bank capital levels and increased firepower for bailouts and the IMF. The plan’s elements emerged as finance ministers and central bankers from the G-20 began talks in Paris.

UBS said it has become “more positive” on commodities. The Standard & Poor’s GSCI Index of 24 raw materials is up 3.8 percent this week, while the MSCI All-Country World Index of equities gained 4.4 percent. “Gold has been moving in positive correlation with risk assets of late,” UBS analysts including London-based Edel Tully, wrote in the report. “This suggests that there is hybrid space that gold will occupy in the months ahead -- one which benefits from a degree of increasing cyclical risk and a sufficient dose of sovereign risk.” Silver for immediate delivery rose 0.7 percent to $32.1025 an ounce. Platinum gained 1 percent to $1,545.50 an ounce. Palladium was up 1.7 percent at $605.38 an ounce. Russia plans to export 4 to 4.5 metric tons of palladium this year and the same amount the following year, Interfax said, citing an unidentified Finance Ministry official connected to the state repository, Gokhran. The country may stop palladium sales after that, the news service said. Russian state stockpile sales at about 31.1 tons were the fourth-biggest source of supply last year, according to London- based trader and researcher Johnson Matthey Plc.

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