Gold is predicted to rise for the fifth week in six on speculation Asian central banks will diversify currency reserves, trimming demand for the US dollar and boosting the metal's allure as an investment option.
A Bloomberg survey shows 22 of 34 traders, investors and analysts from Sydney to New York advised buying gold, which rose 2.7 per cent last week to US$446.80 ($603) an ounce.
Gold sold in US dollars reached a three-month high last Thursday after Japanese Prime Minister Junichiro Koizumi said his country "in general" needed to diversify its reserves. Japanese investors, including the central bank, the largest foreign holder of US Government securities, sold a net US$3.1 billion in December, up from about US$700 million in November.
"Increasingly, gold is acting as a real alternative to other asset classes," said Ron Cameron, an analyst at brokerage Ord Minnett in Sydney.
Koizumi's remarks increased concern about the US dollar after the currency declined for three straight years.
Finance Minister Sadakazu Tanigaki and Hiroshi Watanabe, Japan's top foreign-exchange official, later said the Government had no plan to shift its US$820.5 billion of reserves.
On February 22, gold surged 1.7 per cent, the biggest gain in six months, after South Korea's central bank announced plans to diversify its currency reserves. The bank, with the world's fourth-largest foreign reserves, later said it would not sell US dollars from its holdings to achieve its goal.
US Treasury data showed South Korean investors sold US$300 million in December after buying US$5.6 billion in November.
Chinese investors, the second-largest foreign holder of US Government securities, bought US$2.7 billion in December, down from US$4.4 billion in November and US$6.3 billion in October. "No Asian central bank or other international investor has to sell a single US dollar," said Adrian Day, of Global Strategic Management. "All it takes for the US dollar to decline is that fewer new US dollars are purchased, which is bullish for gold."
Lehman Bros found that China's central bank cut the share of its currency reserves held in US dollars last year to 76 per cent from 82 per cent in 2003 and raised its holdings of euros. A record US$617.7 billion trade deficit in 2004 helped send the greenback to a record low against the euro and lifted gold to a 16-year high of US$458.70 on December 2. A widening gap raises concerns that more greenbacks will have to be converted to other currencies to pay for imports.
The trade gap widened in January to US$58.3 billion, the second-largest ever, leaving the US in need of US$1.9 billion a day. "The widening trade deficit will continue to put pressure on the greenback,"Cameron said. "This should test the US$450 level for gold in the short term."
- BLOOMBERG
Gold shines as greenback loses its clout
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