Wednesday, October 1, 2008

Gold gains as investors flee other assets

Ebbing world demand hurts many sectors

CHAROEN KITTIKANYA and PHUSADEE ARUNMAS

Gold prices are forecast to surge while the prices of other commodities, notably rubber, will fall in the short term in response to global financial and economic stresses, say traders.

Gold investors flock to a Soon Hua Seng store on Yaowarat Road yesterday to buy before prices rise further. PAWAT LAOPAISARNTAKSIN

"Investors are looking for safe-haven assets such as gold," said Jitti Tangsithpakdi, the president of the Gold Trading Association.

"We expect gold will remain in strong demand in the foreseeable future no matter whether the US government makes a decision to bail out its ailing financial institutions or not."

Gold surged 4.9% on Monday as mounting worries over the health of the global financial sector and US legislators' rejection of the $700-billion Wall Street bailout sparked buying of safe-haven assets.

London gold was quoted at $905 on Monday, up from the Friday close at $888.50, before slipping below $900 in Europe yesterday as a firmer dollar and weakness in other commodities such as oil and industrial metals encouraged profit-taking.

Local gold prices were adjusted twice yesterday to 14,300 and 14,200 baht per one-baht weight (15.16 grammes) for gold bars, up from 13,950 baht on Monday and 13,900 on Friday last week. Gold ornaments were quoted at 14,600 baht yesterday, a rise from 14,350 baht on Monday and compared with 14,300 last Friday.

According to Mr Jitti, the US Federal Reserve is expected to be forced to sell its gold reserves to help bail out troubled financial institutions after lawmakers rejected the bailout plan.

But he said the amount would be still be capped at 500 tonnes a year as a part of the Fed's commitment with Europe's central banks. Thus the proceeds earned are unlikely to be sufficient for immediate needs.

While traders are bullish on gold and other precious metals, short-term prospects for agricultural commodities, especially rubber, are gloomy.

Natural rubber yesterday tumbled by the daily trading limit on that concern global economic growth will slow after the US financial rescue plan was rejected and as production in Thailand, the biggest exporter, is forecast to rise.

Rubber dropped 6% and ended its worst quarter in two years in Tokyo amid concerns that slower economic growth will reduce car and tyre sales.

According to Nitus Patrayothin, the president of the Agricultural Futures Exchange of Thailand, AFET rubber futures fell by the 2.80-baht daily limit for all contracts on delivery in December until May.

He said concerns about demand from major economies were affecting rubber.

"Prices of agricultural commodities are likely to keep falling through the rest of the year," added Pornsil Patcharintanakul, vice-president of the agricultural conglomerate Charoen Pokphand Group. "Some new harvests will come as the world's economy is languishing, and the impact is expected to continue until next year."

However, Chookiat Ophaswongse, the president of the Thai Rice Exporters Association, said rice prices were unlikely to be affected much, as rice is the world's staple food.

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