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Red-hot gold sets new peak

Red-hot gold sets new peak
By Jae Hur | December 8, 2005

SINGAPORE (Reuters) - Gold galloped to a new 24-1/2-year high on Thursday on continued fund buying as the yellow metal, backed by strong fundamentals, outperformed traditional assets such as stocks and bonds.

But analysts said gold remained very vulnerable to fund liquidation after it made steep gains in recent weeks on the back of inflation concerns, high oil prices and fund interest in gold and other commodities.

By 0425 GMT, spot gold had risen to $518.20/519.00 an ounce, against $513.90/514.70 last quoted in New York on Wednesday. Earlier, gold hit $518.50 an ounce, its highest since April 1981.

"At the moment the mood is still jubilant. People are still buying and I don't know what's happening, perhaps buying before Christmas," said Darren Heathcote, head of trading at N M Rothschild in Sydney. "Buy gold and have a white Christmas."

After pushing through the $515 level, he put the next target for gold at $520.

However, he said the current price level appeared to be unsustainable due to large long positions on the New York Mercantile Exchange's COMEX division and the Tokyo Commodity Exchange (TOCOM).

"I think correction is on the cards at some point. We will be looking at $20-30 within a day, once it does come," he said.

Gold, used in jewelry and as an investment, has surged as investors switch from traditional securities such as shares and bonds into gold and other commodities for bigger returns and on fears about inflation and economic growth.

The price of gold has gained about 20 percent this year and has doubled in about five years.

This compares with a gain of about 4 to 5 percent on the Standard & Poor's 500 Index <.SPX> and a yield on the benchmark 10-year U.S. Treasury note of 4.52 percent.

STRONG FUNDAMENTALS

Gold has also been supported by tight supply, strong demand and speculation that some Asian central banks would increase gold holdings in their reserves, dealers said.

Russia, Argentina and South Africa have expressed interest in increasing their gold holdings, even though European central banks, which are signatories of the Central Banks Gold Agreement, have sold over 100 tonnes since September.

"The market is everyday ratcheting up a bit and has a small sell-off, a little bit of correction, which people are treating as a buying opportunity," said a dealer with a major foreign investment bank in Singapore.

He put resistance for gold at $525 and support at $510 for the very short term.

Strong buying interest in Japan, where investors are concerned about the weaker yen and inflation, also gave gold a boost, dealers said.

Benchmark October gold futures <0#JAU:> on the Tokyo Commodity Exchange were up 19 yen per gram at 2,057 yen. Earlier, it hit 2,060 yen, a new 15-year peak.

Other precious metals followed gold's lead.

Platinum <XPT=> jumped to $999/1,003 an ounce, from $991/996 late in New York. On Monday, platinum rose to $1,006, the highest since March 1980.

Platinum's sister metal, palladium <XPD=>, was at $277/281 an ounce versus $274/278. Earlier, it hit $278, the highest since April 2004.

Silver <XAG=> was at $8.80/8.83 an ounce, against $8.77/8.80 late in New York.On Wednesday, silver hit $8.86, its highest since August 1987.

(Additional reporting by Rajat Bhattacharya in Singapore)


LINK: http://www.boston.com/news/world/asia/articles/2005/12/08/red_hot_gold_sets_new_peak/