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IT IS 1979 and Harry “Rabbit” Angstrom, the hero of John Updike’s series of novels, is explaining to his wife why he has just spent more than $11,000 on 30 gold krugerrands. “The beauty of gold is, it loves bad news,” he says. Three decades later, gold is once again thriving on despair. Before Christmas, a troy ounce could be bought for around $800. By the third week in February, gold was trading at close to $1,000 an ounce.
A surge in demand for gold as an investment lies behind the jump in prices. Flows into exchange-traded funds, which buy and store gold for their shareholders, rose from 105 tonnes in January to 208 tonnes in the first three weeks of February, according to Suki Cooper at Barclays Capital. At that rate, inflows will soon surpass the total of 322 tonnes for the whole of 2008. Buying by investors has more than made up for a slump in gold-jewellery purchases in key markets, such as India and Turkey, where higher prices and wilting exchange rates have crushed demand.