March 12, 2009 / 6:40 AM / 11 years ago

Gold jumps as SNB currency sale spooks market

LONDON (Reuters) - Gold jumped more than 2 percent on Thursday, boosted after the Swiss National Bank sold francs against the euro and raised the specter of a race to devalue major currencies.

Analysts said the SNB intervention means one of the world’s safest currencies is being deliberately undermined to help boost growth and that other countries could follow.

“If all currencies are being devalued against each other then gold is a currency which is going to profit from it,” Commerzbank analyst Eugen Weinberg said.

“So we have bad currencies, worse currencies and the worst currencies, and gold could be an alternative stable currency in this case.”

Spot gold rallied to a high of $930.45 and was quoted at $925.65/926.85 an ounce at 12:28 p.m. EDT from $906.65 late in New York on Wednesday.

U.S. gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $14.40 to $925.10 an ounce.

The Swiss franc had its biggest ever one-day drop against the euro after the SNB said it had sold francs as part of a drive to boost the economy, which also includes an interest rate cut and planned bond buy.

“The SNB have now fired the first formal shot in the forthcoming currency war,” ING Bank said in a note.

After an early fall, U.S. stocks rose for a third straight day on oil and spending optimism, reflecting afternoon gains in European shares, boosted by pharma and biotech stocks.

Gold has recently served as a haven from weak equities and financial sector instability.

The world’s largest gold-backed ETF, the SPDR Gold Trust, said its holdings hit a record 1,038.17 tonnes on Wednesday, fuelling expectations investor demand will remain strong.

The dollar firmed against the euro. While a stronger dollar usually pressures gold, which is typically bought as an alternative to the currency, both assets are now moving in the same direction as they take their cues from risk aversion.

PRODUCTION DROPS

In production news, South African gold output fell 8.7 percent in volume terms and total mineral production dropped 11 percent in January compared with the same month in the previous year.

The country is the world’s second-biggest gold producer after China.

Broker Numis Securities cited falling mine supply, along with risk aversion, physical bullion demand, and the prospect of rising inflation and a weaker dollar, as behind a decision to raise its 2009 gold price forecast to $900 an ounce from $700.

Metals consultancy GFMS said the rate of producer de-hedging — in which miners buy back gold they had previously sold forward to regain exposure to rising prices — slowed in the fourth quarter of 2008 and will decrease further this year.

Dehedging was a major source of gold demand in recent years, but the rate of activity has slowed naturally as the global hedgebook has diminished.

“Higher gold prices tend to make miners keen to dehedge historic gold positions, but the expense of the dehedging can also dissuade miners from taking the pain,” Fairfax analyst John Meyer said.

Among other precious metals, spot silver was at $12.98/13.05 an ounce against $12.75.

Spot platinum was at $1,045/1,050 an ounce against $1,050, while spot palladium was a touch firmer at $195.50/200.50 an ounce against $195.

Additional reporting by Pratima Desai; editing by Sue Thomas

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