Gold Gains as Korean Missile Sparks Haven Buying by Investors

June 20 -- Gold rose on concern that North Korea may be preparing to test a long-range ballistic missile, prompting some investors to buy bullion as a haven.

The missile may eventually have the capacity to strike the U.S., the New York Times said yesterday, citing former National Security Council aide Gary Samore. Gold typically rises in times of geopolitical tension. A conflict over Iran's nuclear program helped push gold to a 26-year high last month. Since then, prices have dropped 21 percent.

``The market's gotten enough of a liquidation, it's coming back to looking at core fundamentals,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. ``Gold will start refocusing on North Korea, Iran and the hurricane season.''

Gold futures for August delivery rose $8.10, or 1.4 percent, to $580.50 an ounce on the Comex division of the New York Mercantile Exchange. Prices reached a high of $732 on May 12 and are up 30 percent from a year ago. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Gold for immediate delivery rose $10.45, or 1.8 percent, to $575.70 an ounce at 7:30 p.m. in London. The precious metal has fallen for five consecutive weeks since reaching a high of $730.40 on May 12.

Gold has rallied during previous instances of turmoil or political unrest. Spot gold surged 5.3 percent in Sept. 11, 2001, when terrorists attacked the U.S.

Missile or Satellite?

North Korea may be preparing to launch a satellite rather than testing a missile, South Korea's ruling party said, citing Unification Minister Lee Jong Seok.

``It is difficult to discern whether the launch vehicle is a missile or a satellite,'' Uri Party spokesman Woo Sang Ho said today after party leaders met Lee, who also serves as the nation's security chief.

``You have a little confusion out there with North Korea, so people would rather be safe than sorry,'' said Domenick Nardo, a trader at FIC Commodities in New York. ``We had some strong fund buying. They really pumped it up.''

Gold also rose today after the dollar had its biggest decline against the yen in two weeks, making the precious metals cheaper for Japanese buyers. Gold traditionally moves in the opposite direction of the U.S. dollar.

The yen rose against the dollar after Bank of Japan Governor Toshihiko Fukui said the central bank needs to adjust interest rates from near zero percent ``without delay.'' Some investors buy gold to hedge against the erosion of dollar- denominated assets.

Gold Volatility

Wide price fluctuations have discouraged some investors from buying or selling the metal, analysts said. Gold's historical volatility, or the rate at which a price moves up and down, is at 45 percent in the past 10 days, compared with 39 percent during the same period a month earlier.

``There are people standing aside,'' said Jeffrey Christian, managing director of CPM Group, a New-York based metals research firm. ``The market has not been able to firmly move above $570 for the past few trading days, so there are people who think it's vulnerable to another leg down. We could spike down to $540 and move up to $580.''

William B. O'Neill, a partner at Logic Advisors LLC in Upper Saddle River, New Jersey, is advising clients to stay out of the gold market.

``I don't think the market is yet ready to go back up,'' said O'Neill, who advised clients three weeks ago to pull out of the market. ``If you look at the action recently, it's been a little bit sloppy, a little bit two-sided, and certainly vastly different than the big bull run that we had over the past year.''

Silver for July delivery rose 30 cents, or 3 percent, to $10.27 an ounce on the Comex. Prices earlier touched $9.785.