Gold Rises to Four-Week High After North Korea Tests Missiles

July 5 -- Gold rose to a four-week high after missile tests by North Korea sparked demand from investors seeking an alternative to stocks and bonds. Silver climbed to the highest in more than three weeks.

White House National Security Adviser Stephen Hadley called today's tests over the Sea of Japan ``provocative.'' Japan said it may impose sanctions, which North Korea has said amount to a declaration of war. Gold has jumped 47 percent in the past year and reached a 26-year high in May on concern a dispute over Iran's nuclear program may escalate.

``Geopolitical uncertainty always gives investors some motivation to buy the precious metals and particularly gold,'' said Michael Widmer, an analyst at Macquarie Bank Ltd. in London. ``It has the appeal of a safe-haven investment.''

Gold futures for delivery in August rose $7, or 1.2 percent, to $623.20 at 10:35 a.m. on the Comex division of the New York Mercantile Exchange, after reaching $632.50, the highest since June 8. There was no trading in the U.S. yesterday because of the July 4 Independence Day holiday. Gold for immediate delivery rose $1.08, or 0.2 percent, to $621.32 ounce at 3:36 p.m. in London.

Concern about accelerating inflation and a slumping dollar during the past month has revived gold's rally, after the metal plunged as much as 25 percent from a high of $732 on May 11 in New York to a two-month low of $546.40 on June 14. Since then, prices are up about 14 percent.

Metal Was Cheap

``A lot of buyers were just waiting to get in again, once they realized it is not going to get any cheaper,'' Friedrich Kernstock, at Kernco Metal Trading GmbH in Vienna. ``A combination of factors is supporting gold. It may reach $700 or $800 by year end.''

Money from passive investment funds, which are diversifying into commodities, and individuals who are buying into exchange- traded funds, has helped spur the gains in gold during the past year.

``It is very positive because when pension funds take a position, it is not something they easily reverse,'' said Mark Lynam, executive officer of treasury at AngloGold Ashanti Ltd. ``We are seeing positive momentum.''

AngloGold is the world's third largest bullion producer.

Gold surged 5.3 percent on Sept. 11, 2001, when terrorists attacked the U.S. The metal rose as much as 1.5 percent on March 8 after a report that North Korea fired two missiles near its border with China.

Gold as Haven

``North Korea's hawkish policy is certainly giving those seeking haven a reason to buy,'' said Ross Norman, a director of TheBullionDesk.com, in Saffron Walden, U.K. ``There continues to be political concerns elsewhere, like in the Middle East.''

North Korea's latest missile tests defied calls for restraint from the U.S., China, Japan, South Korea and Russia, and may undermine diplomatic efforts to persuade the country to give up its nuclear-weapons program.

``We will consider every type of sanctions possible,'' Japan's Chief Cabinet Secretary Shinzo Abe said in Tokyo. ``The international community should strictly condemn the North Korean missile launches.''

Gold may reach $636 today on investor concern about North Korea, said Darren Heathcote, head of trading at N.M. Rothschild and Sons (Australia) Ltd. in Sydney.

``The geopolitical positioning with North Korea will keep the gold market on the edge,'' Ron Cameron, a resources analyst at Ord Minnett Ltd., said from Sydney. ``Gold prices could shoot through.''

Iran Concern

Gold also was supported by concern Iran will fail to reach agreement with the U.S. and European Union over its nuclear program. Iran yesterday rejected calls for a prompt reply to an EU proposal that offered a light-water reactor for a power plant in exchange for an end to its research program. Iran has until July 12 to stop enriching uranium or face possible United Nations Security Council sanctions.

Foreign Minister Manouchehr Mottaki told reporters in Tehran yesterday that the Islamic Republic needs time ``to review with detail all the facets of the offer'' of incentives to end its enrichment of uranium. Iran insists on sticking to its own deadline of Aug. 22.

Silver for delivery in September rose 37 cents, or 3.4 percent, to $11.29 an ounce on the Comex. Silver has risen 29 percent this year amid rising industrial demand, and increased hedge fund and pension fund interest in commodities.

``Silver tends to move quite closely to gold, and the fundamentals are also strong with investment demand quite strong,'' said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd., in Melbourne. ``We see gold moving higher over the course of the year.''