Developing countries driving gold demand

Investors flocked to gold Friday, sending it to the latest of a series of records, as fears about recession in the world's major economies infected financial markets.

The metal soared as high as US$1,881.40 an ounce. It has been on a tear this summer, rising more than 15 per cent in August alone. In the same three weeks, the Standard & Poor's 500-stock index has fallen about 12 per cent.

Gold logged its biggest weekly gain since February 2009, according to FactSet data.

As an investment, the metal has climbed because of investors' concern about the uncertain state of the global economy, diving stock markets, and moves by central banks around the world to weaken their currencies.

Central banks in developing countries are also swapping out major currencies for gold in their reserves, driving up demand for the metal.

At this point, analysts say more than fear is driving gold higher. The simple fact that it has kept rising in an otherwise turbulent market is part of the metal's appeal. The recent surge "lacks a lot of explanation," said Jon Nadler, an analyst for Kitco Bullion Dealers, and that, to him, signals

danger of a deep reversal as it approaches us$2,000 an ounce.

But analysts have been predicting a top in the market for months only to see gold's climb accelerate.

The last time gold was worth less than us$1,000 an ounce was October 2009. It gained steadily from there, and then burst higher this summer, crossing us$1,600 an ounce for the first time in mid-July; three weeks later it was worth more than US$1,700 an ounce, and 10 days later, it passed US$1,800 an ounce.

Gold for December delivery, the most actively traded contract, settled up US$30.20, or 1.6 per cent, at US$1,852.20 an ounce.

Still, these record highs remain below gold's 1980 peak of US$850 when adjusted for inflation; that equals about US$2,400 in today's dollars.

The surge in gold is affecting gold-producing countries, even minor exporters.

Police in Guyana said Friday that the surge had triggered killings, robberies and other crimes across the South American country. Venezuela said earlier this week that it was nationalising its gold industry and bringing home its US$11 billion in gold reserves.

- AP