Gold Prices Surge 12% in August

Gold (NYSE:GLD) futures continued to climb Wednesday, gaining 12% for the month of August in their best one-month performance since November 2009. Gold prices are up $201 an ounce this month, and rose to a record high settlement of $1,891.90 on August 22, though it dropped nearly 6% just two days later for its worst one-day performance since March 2008. Gold has moved incrementally higher since last week’s drop, adding $38.20 Tuesday to reach $1,829.80 an ounce.

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While demand for physical gold (NYSE:PHYS) has been strong in Asia and Europe, Bernard Sin, head of currency and metals trading at MKS Finance in Geneva, says that it’s likely to remain rangebound and trading choppy over the next few days, though it has potential to climb as upcoming Hindu holidays initiate the buying season in India. China (NYSE:FXI) and India have long been the world’s top gold consumers, as the commodity is tied up in many long-standing traditions, though nontraditional buyers like hedge funds and wealthy individuals have also been responsible for rising gold prices.

Today it was announced that China’s bullion-accumulation program would increase its holdings of gold and other commodities (NYSE:RJI). “China should realize that gold is an important strategic reserve, and should increase its holdings over the long term, buying on price dips,” said People’s Bank of China adviser Xia Bin. “In the past we have not established this as an investment principle, but now we must.”

Gold mining (NYSE:GDX) is on the rise, especially in Australia, where gold production climbed 10% to 270 metric tons in fiscal 2010-2011. Between March and June of this year, the country produced 68.1 metric tons more than in the previous quarter, a difference of roughly 5%. In Peru, mining output had climbed 9.1% year-over-year as of July.

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