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Gold Gains on Inflation Fears Set Off By Oil Price Surge MARKETPLACE By Bloomberg

Posted on: Tuesday, 21 February 2006, 12:00 CST

By Alejandro Barbajosa

Gold rose on Monday as a surge in crude oil prices set off speculation that inflation would accelerate and erode the value of assets. The price of gold rose "because of inflationary expectations," said Yingxi Yu of Barclays Capital in London. "The gold market recently has been following oil prices quite closely."

In afternoon trading in London, gold for immediate delivery rose $2.80 to $554.50

Gold may keep rising as investors buy bullion as a hedge against inflation, according to 37 traders, investors and analysts surveyed by Bloomberg; 10 advised selling and 4 were neutral. "We remain cautious about the near-term outlook for gold, as the recent corrections have yet to see convincing interest from the jewelry market," said Robin Bhar, a UBS analyst in London.

Gold should trade at $535 to $575 in the near term, he said.

Speculators have almost doubled their holdings in gold futures since August, according to reports from the U.S. Commodity Futures Trading Commission. Hedge funds and other large speculators held net- long positions, or bets that prices would rise, totaling 118,914 Comex gold contracts as of Feb. 14, up from 65,569 on Aug. 2, according to data on Friday from the commission. Speculators amassed 177,410 contracts on Oct. 11, the most since at least February 1983. Gold rose 18 percent last year, the fifth straight annual gain. Prices are up more than 7 percent this year and reached a 25-year high of $575.35 on Feb. 2.

Brent crude oil climbed on Monday after rebel attacks in Nigeria cut output from that country, Africa's largest producer, reviving concern that there is little room to make up for disruptions.

"The fear with Nigeria is that you've got elections coming up next year and that's leading to the possibility of an upsurge in violence," said Michael Lewis, head of commodities research at Deutsche Bank in London. The uprising is not "going to be a one-off event," he added. "OPEC isn't in a very strong position to respond to a round of successive disruptions."

Source: International Herald Tribune

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