By Kishori Krishnan Exclusive To Gold Investing News

The dollar rose as did gold. Gold rose in Europe on Thursday as the world’s largest gold-backed exchange-traded fund’s holdings set a record and Wednesday’s equity rally fizzled out, boosting the appeal of gold as a safe investment. Spot gold rose to $913.15/$914.15 an ounce from $906.65 late in New York on Wednesday.

Canadian stocks gained too, building on their biggest rally since November, as mining companies rose with gold prices and financial stocks rallied for a second day on speculation that the worst of the banking crisis may be over. According to a Bloomberg report, Goldcorp Inc. added 5.9 per cent as gold rebounded from the lowest level in a month.

The gold bullion added six percent or $14.80 to US$910.70 an ounce on the New York Mercantile Exchange. Goldcorp Inc. (TSX: G) gained $2.01 to $36.00 while Barrick Gold Corp. (TSX: ABX) added $2.04 or 6.1 per cent to $35.34. Kinross Gold (TSX: K) surged $1.29 to $19.72. In the US, Newmont Mining (NYSE: NEM) rallied $1.63 to close at $36.66. AngloGold Ashanti (NYSE: AU) edged 2.12 per cent up while Goldfields (NYSE: GFI) added 6.27 per cent to close at $11.52.

“This market has the potential to finally put on a sustainable rally,” said Gerry Brockelsby, founding partner of Marquest Investment Counsel in Toronto, which managed about $286 million as of September. To add to the melee, the world’s largest gold-backed ETF, the SPDR Gold Trust, said its holdings hit a record on Wednesday, fuelling expectations investor demand will remain strong. They rose 9.18 tonnes or nearly 0.9 per cent to 1,038.17 tonnes

“Investor demand for gold is there until we see a sustained rally in equities,” said VTB Capital analyst Andrey Kryuchenkov. The US dollar was mostly higher against other major currencies. The dollar strengthened 0.5 per cent against the Euro as a recent run of risk appetite ran out of steam, boosting interest in the currency as a haven. While a stronger dollar usually pressures gold, which is typically bought as an alternative to the currency, both assets are moving in the same direction at present, as they take their cues from risk aversion.

Gold traded slightly higher in Asia too. It soared higher in the last three and a half hours of trade and the yellow metal ended near its high of $913.15 with a gain of 1.55 per cent. Silver also surged back higher in late New York trade and it ended near its high of $12.885 with a gain of 2.4 per cent.

Among other metals for immediate delivery, platinum climbed $10.50, or 1 per cent, $1,052 an ounce and palladium rose 75 cents to $198.75 an ounce. 

Mint special

Incidentally, from September 2008 through January, the U.S. Mint sold 816,500 American Eagle gold coins-more than triple the sales from the same period a year earlier-and is now rationing some types of coins until it can catch up with booming demand. Delays at the Mint have made it tougher for both suppliers and retail customers to get the gold they want.

Wholesaler Michael Kramer had been used to an armored car pulling up outside his New York City vault, dropping off bullion and coins as often as three times a week. Now, he says, he gets only one delivery a week. At U.S. Coins in Houston, customers have had to wait nearly two weeks for the delivery of their gold, compared with less than a week before demand spiked last fall, says assistant manager Nick Koutsodontis.

But is gold really worth all the fuss? Ask the experts.

Expert talk

“There is some bargain hunting and we have seen some industrial interest for a change,” said Wolfgang Wrzesniok- Rossbach, head of marketing and sales at Hanau, Germany-based refining company Heraeus Holding GmbH. “This is a natural reaction to the huge drop we’ve seen in the last few days.”

“We’re seeing quite a lot of demand from the U.S.,” said Hector McNeil, head of sales and marketing at ETF Securities in London. “People think GLD is too big. They want to spread their risk. The hard-nosed gold traders are afraid the U.S. could privatize gold as they did in the 1930s through the process of sequestration.”

Aaron Regent, the chief executive of Barrick Gold Corp (ABX.TO), the world’s largest gold producer, told Reuters Global Mining and Steel Summit in New York on Tuesday that the price of gold would remain volatile in the near term. Regent said the long-term trend for gold should be positive because of strong investment demand and increased jewelry buying.

“I think that gold as an attractive asset class is continuing to grow, and that is evidenced by the strong inflow to the ETF market,” said Regent, referring to the recent sharp gains of bullion holdings in gold-backed exchange-traded funds.

In South Africa, Nick Holland, CEO of the world’s fourth largest gold producer, Gold Fields (GFIJ.J), forecast gold would rise on safe-haven buying that sent it to a near 11-month high above $1,000 an ounce on February 20, not far from the record of $1,030.80 hit last March.

“The previous record was just over a thousand, we’ve been up near there just recently and I think there’s a distinct possibility that we could go above that any time in the next couple of months, that’s possible,” Holland told the Reuters Global Mining and Steel Summit in Johannesburg.

Gold funds

Gold funds have become the biggest hit of the year with investors as they are giving unimaginable returns during the past few months. In India, two prominent gold funds, DSPBR World Gold and AIG World Gold, delivered a whopping return of nearly 40 per cent in the last three months. DSPBR Gold, with a track record of over a year, fell just 12 per cent compared to a year ago levels.

This return has also been aided by the fact that the rupee has appreciated over 16 per cent in the last six months, and 28 per cent in the last year. Both these funds beat the benchmark FTSE Gold Mines index substantially, despite its being adjusted to rupee terms.

The DSPBR World Gold Fund invests over 98 per cent of its portfolio in Blackrock Gold Fund, while AIG World Gold Fund invests nearly 86 per cent of its portfolio in AIG PB Equity Gold fund. Both these funds also invest in platinum, silver and diamond mining companies though limiting them to 9-15 per cent of their portfolios.

Reuters has reported that the holdings of Julius Baer’s (BAER.VX) gold-backed exchange traded fund rose 109,000 ounces or 18 per cent last week. The amount of gold the fund holds to back its exchange-traded securities climbed to a record 728,575 ounces by March 6 from 619,575 ounces the previous Friday.

Investors are buying into gold as a safe store of value amid volatility in other asset classes. As gold ETFs are backed by physical stocks of a precious metal, they are marketed as lower in counterparty risk than other investments.