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Gold at 16-week high; rally seen overdone

gold and silverGold and silver rose to 16-week highs in New York on speculation that weakening U.S. growth and turmoil in Ukraine will boost demand for the precious metals as a haven.

Economic activity in the U.S., as measured by the Federal Reserve Bank of Chicago’s national index, for January was at minus 0.39, compared with analysts’ median estimate of minus 0.2. A below-zero reading indicates below-trend growth. Ukraine’s interim government said the country needs $35 billion of financial assistance to avoid default as it issued an arrest warrant for fleeing ex-President Viktor Yanukovych.

“There is some safe-haven buying because of continued signs of slowing growth in the U.S.,” Tom Power, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “Concerns about Ukraine remain.”

Gold futures for April delivery climbed 1.1 percent to settle at $1,338 an ounce at 1:43 p.m. on the Comex in New York, after touching $1,339.20, the highest for a most-active contract since Oct. 31.

After slumping last year by the most since 1981, gold rose 11 percent since the end of December and is headed for a second monthly gain. Bullion prices rebounded this year even as the Federal Reserve continued slowing stimulus.

“The market is only reacting over U.S. figures,” Bernard Sin, head of currency and metal trading at bullion refiner MKS (Switzerland) SA in Geneva, said today by telephone. “The political situation has been rather tense. There’s some speculative interest in going into gold as a safe haven.”

Bullion surged 70 percent from December 2008 to June 2011 as the central bank pumped more than $2 trillion into the financial system.

Hedge funds and other money managers increased their net-long gold position by 31 percent to a 16-week high of 90,942 contracts in the week to Feb. 18, U.S. Commodity Futures Trading Commission data show. Holdings in gold-backed exchange-traded products rose 3 metric tons to 1,739.2 tons on Feb. 21, data compiled by Bloomberg show. They fell to the lowest level since October 2009 on Feb. 19.

Analysts are split on the outlook for prices. Gold has lost its luster and will decline to $1,011 in December as the Fed tapers and the dollar strengthens, Westpac Banking Corp. said Feb. 20. Goldman Sachs Group Inc. sees prices dropping to $1,050 by the end of the year. UBS AG said Feb. 19 that the metal has “started to shed its stigma,” and increased its 2014 forecast to $1,300 from $1,200.

Silver futures for delivery in May rose 1.3 percent to $22.089 an ounce, after climbing to $22.215, the highest since Oct. 31. Trading was more than double the average in the past 100 days, data compiled by Bloomberg show. Prices have risen 14 percent this year.

Palladium futures for delivery in June added 0.4 percent to $745.35 an ounce on the New York Mercantile Exchange.

Platinum futures for April delivery gained 0.9 percent to $1,441.40 an ounce, the second straight advance, amid concern that an ongoing strike will crimp output from South Africa, the biggest producer.-Bloomberg