Gold Increases in Asia on U.S. Negative Real Interest Rates

By Feiwen Rong

Feb. 4 (Bloomberg) -- Gold rose in Asia after the biggest decline in 11 weeks as negative real interest rates in the U.S. increased demand for the metal as an alternative investment.

The Federal Reserve cut borrowing costs by 1.25 percentage point to 3 percent in January. The three-month U.S. dollar London interbank offered rate, a lending benchmark that fluctuates depending on how willing banks are to lend to each other, fell below 3.1 percent on Feb. 1, the lowest since 2005, according to the British Bankers' Association.

The rate cuts pushed the ``real 3-month Libor rate even further into negative territory'' which has ``serious implications for the gold prices,'' analysts at Credit Suisse said in a report Feb. 1. ``Since gold is a non-yielding asset, its price should benefit, particularly in an environment of negative real rates.''

Bullion for immediate delivery gained as much as $7.42, or 0.8 percent, to $912.90 an ounce and traded at $909.45 at 3:56 p.m. Singapore time. The metal rose to a record $936.92 Feb. 1, before closing down 2.2 in the biggest one-day drop since Nov. 15. Silver for immediate delivery was little changed at $16.80 an ounce.

U.S. consumer prices rose 4.1 percent in the 12 months ended Dec. 31.

Gold also benefited from a rising euro against the dollar on speculation the European Central Bank will keep interest rates at a six-year high this week.

South Africa

Power shortages in South Africa also drove bullion's rally last week. Miners including Anglo Platinum Ltd. and Gold Fields Ltd. were raising electricity consumption to 90 percent of normal levels on Feb. 1 to boost output after cuts last week.

``The situation remains shaky,'' the Credit Suisse report said. Eskom Holdings Ltd., South Africa's state-owned power utility, said a generator at its Tutuka power station tripped late Feb. 2, reducing power supply by a further 640 megawatts.

Bullion for December delivery on the Tokyo Commodity Exchange fell 1.5 percent to 3,146 yen a gram ($916 an ounce) at the 5 p.m. local time.

Bullion for June delivery on the Shanghai Futures Exchange, the most active contract, closed down 3.15 yuan, or 1.4 percent, to 215.6 yuan a gram ($933 an ounce).

Gold for April delivery was little changed at $914.30 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at the same time.