Gold advances on China stimulus speculation

Gold advanced the most in more than two weeks amid speculation that China, the world’s biggest consumer, will take more measures to bolster the economy, boosting demand for the precious metal as a store of value.

The People’s Bank of China plans to temporarily waive a requirement for lenders to set aside reserves for some deposits, people with knowledge of the matter said. Gold surged 70 percent from December 2008 to June 2011 as central banks increased money supply on an unprecedented scale.

Gold has rebounded more than 5 percent from a four-year low reached in November as China lowered interest rates last month to spur economic growth and Japan expanded its unprecedented stimulus program. The moves rekindled concern that global inflation could rise even as U.S. consumer costs stay below the Federal Reserve’s goal.

“Speculation that China will do more to support the economy is creating demand for gold,” George Gero, a precious- metal strategist at RBC Capital Markets in New York, said in a telephone interview. “At some point with all this money in the system, we could see some concern about inflation.”

Gold futures for February delivery climbed 1.9 percent to $1,193 an ounce at 9:46 a.m. on the Comex in New York, heading for the biggest gain since Dec. 9. Prices declined 1.9 percent in the previous three sessions. Aggregate trading was 41 percent below the 100-day average for this time, according to data compiled by Bloomberg.

 

Annual Decline

Bullion prices declined 2.4 percent this year through Dec. 24 as prospects for higher U.S. borrowing costs, accelerating economic growth and a plunge in crude-oil prices crimped investor demand for the metal.

Crude futures, down 43 percent this year, rose earlier today on concern that fighting in Libya, holder of Africa’s largest oil reserve, will disrupt supply.

The precious metal slumped 28 percent last year as equities surged amid muted inflation.

Silver futures for March delivery rose 2.8 percent to $16.15 an ounce. The price has declined 17 percent this year.