Gold Rises to Record as Investors Seek Alternative to Currency

By Pham-Duy Nguyen

May 12 (Bloomberg) -- Gold futures rose to a record for the second straight day as financial turmoil in Europe spurred demand for an alternative to currencies.

Gold priced in euros, British pounds and Swiss francs also rallied to all-time highs on concern that a plan to rescue Europe’s indebted nations will slow the region’s economic recovery and devalue the 16-nation common currency.

“Gold is expensive, but people in the euro zone are moving out of their currencies and forcing themselves into gold,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “There’s a lot of fear on the part of the Europeans that moves to mitigate their debt crisis will only lead to more problems. People want to be in the currency of last resort.”

On the Comex in New York, gold futures for June delivery rose $22.80, or 1.9 percent, to $1,243.10 an ounce. Earlier, the price reached $1,247.70, the highest ever.

The euro has dropped 12 percent against the dollar this year on concern that budget deficits in Greece, Spain and Portugal will escalate. Over the weekend, the European Union and the International Monetary Fund announced a rescue package of almost $1 trillion.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, have advanced 5.2 percent this year to a record.

“The whole bailout is quantitative easing across all of Europe,” said Michael Guido, the director of hedge-fund sales at Macquarie Bank Ltd. in New York, who expects gold to rise to $1,500 by the end of the year. “You’re seeing this big rush into gold ETFs, physical bars and coins out of Europe that’s supporting the thesis that gold is the default currency.”

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