COMMODITIES

GOLD MAY REACH 25-YEAR HIGH Gold may rise for a third straight week and reach a 25-year high on speculation that tension over Iran’s nuclear program will spur investor demand for bullion as a haven, a Bloomberg survey shows.

Fifteen of 28 traders, investors, and analysts surveyed from Sydney to Chicago last Thursday and Friday advised buying gold, which last week reached $558.80 an ounce, the highest since January 21, 1981. Seven respondents recommended selling. Six said prices will be little changed this week.

Gold has jumped 24% in the past four months, mostly on concern of accelerating inflation and lower returns from stocks and bonds. An escalating dispute with Iran, the second-largest Middle East oil producer, may lead to sanctions that cut energy supplies, analysts said. President Bush said a nuclear-armed Iran would pose a “grave threat” to the world.

“When people become worried about the future, they’ll seize upon gold as an anchor,” an analyst and editor of the Jefferson, La.-based Gold Newsletter, Brien Lundin, said. “The standoff in Iran harkens to that growing uneasiness in the world.”

– Bloomberg News

FOREIGN EXCHANGE

CHINA’S RESERVES RISE, NEARLY MATCH JAPAN’S China’s foreign-exchange reserves rose to a record last year, almost matching Japan’s as the world’s largest, as a swelling trade surplus and money inflows betting on a currency revaluation boosted holdings.

Reserves rose to $818.9 billion at the end of December from $769 billion at the end of September and $610 billion a year earlier, the People’s Bank of China said on its Web site yesterday. Japan’s foreign-exchange reserves stood at $824 billion at the end of November.

China has been investing its reserves in U.S. government debt and held $247 billion in treasury bonds at the end of October, making the nation the largest investor after Japan. The government is looking for new ways to invest the money to seek higher returns, China’s currency regulator said on January 5.

“The bigger the reserves get, the more nervous China is likely to be about keeping them predominantly in dollars,” the chief international economist at Capital Economics in London, Julian Jessop, said. “China’s probably not going to do a lot with its existing reserves, but what it might do is put a smaller portion of its new reserves into dollars.”

The nation’s reserves of foreign currency, which economists estimate are between 70% and 80% in dollars, have almost tripled since the end of 2002, lifted by about $170 billion of foreign investment, a cumulative trade surplus of $160 billion and billions of dollars of capital inflows betting on a rising yuan. China revalued its currency by 2.1% against the dollar in July and is under pressure from America, Europe, and Japan to let the yuan appreciate more.

ECONOMY

STRONGEST QUARTER IN SIX YEARS FOR INDUSTRIAL PRODUCTION An increase in industrial production in America last month capped the strongest quarter in six years and core inflation rose in 2005 at the same pace as last year even as fuel prices soared, government reports this week will probably show.

Output at the nation’s factories, mines, and utilities rose 0.5% in December after increasing 0.7% a month earlier, the Federal Reserve is expected to report tomorrow, according to the median estimate of economists surveyed by Bloomberg News. Core prices, which exclude food and fuel, rose 2.2% for the year, matching the 2004 increase, the economists expect a Labor Department report a day later will show.

Factory production lines are running at full speed to replenish depleted inventories and keep up with orders as businesses boost spending on new equipment. The gains are coming just in time to invigorate economic growth as housing and other forms of consumer spending wane. Competition for consumers’ paychecks is restraining most prices.

“We will see a change in the drivers of economic growth with capital spending taking a lead,” an economist at Deutsche Bank Securities, Carl Riccadonna, said. “There is a little softness in consumer spending and the inflation data isn’t looking that bad.”

The expected increase last month would lead to a 0.8% average production gain from October through December, the best quarterly performance since the last three months of 1999.

– Bloomberg News