A man displays gold bars in Tokyo in this undated file photo. Gold prices closed at their highest in more than 24 years on Tuesday in a rally driven by inflation worries and by funds diversifying into commodities for bigger returns, dealers said. (REUTERS/Susumu Takahashi)
Gold in stratosphere, wary of correction By Jae Hur | December 7, 2005
SINGAPORE (Reuters) - Gold hit a fresh 24-1/2-year high on Wednesday, supported by inflation concerns and robust investment demand in commodities, but dealers warned the market remained vulnerable to fund liquidation.
By 0646 GMT, spot gold <XAU=> was at $512.60/513.40 an ounce, up from $510.50/511.30 last quoted in New York on Tuesday. Earlier, gold hit $513.00/513.80 -- the highest level since April 1981.
In April 1981, the London gold fix by bullion dealers reached $534.25, according to data from The London Bullion Market Association. In January 1980, it hit a record level of
$850.
"The market is still looking very bullish," said a bullion dealer with a major investment bank in Singapore. "Still unresolved buying out of Japan is pushing it higher."
The Japanese seemed to believe that markets like equities and bonds were peaking, and gold was a safer investment to maintain steady rather than huge gains, he said.
More market reports showed gold had a further upside, with one saying bullion could hit $600 an ounce before Christmas or year-end, he said.
"I don't believe that for a minute, but I have just read about that development on the Internet. There are some people thinking there is a considerable upside yet to come in this market."
He said the gold market has been supported by two factors.
One was that people have been diversifying their investment from traditional financial securities, such as shares and bonds, into gold and other commodities.
The second factor relates to recent decisions by some central banks to increase the amount of gold in their reserves and speculation it would not be long before Asian central banks with very low gold reserves followed suit.
CORRECTION CONCERNS
In November, Russia, Argentina and South Africa decided to increase the amount of gold in their reserves, reversing a six-year trend of central bank sales, mainly from Europe.
Craig James, chief economist at Commonwealth Securities in Sydney, said: "The anecdotal evidence is that physical demand has softened somewhat because of high prices, but the speculative interest is still there.
"Of course it's not just gold, it's a whole range of base and precious metals and commodities in general, including sugar," he added.
But the gold market remained susceptible to a sharp correction, particularly given the speculative factors behind recent steep gains in gold prices, he said.
On Tuesday, gold recovered from a wave of investment fund profit taking earlier in the day, before rising late in New York trading on a renewed push by speculators toward higher prices.
Short-term technical resistance was seen at $511.50, then at $515, while support was seen at $509.50, then at $503.50, N M Rothschild said in a daily report.
Gold, used in jewelry and as an investment, spent much of the period from 1997 to 2001 below $300, before embarking on a bull run that has seen its price nearly double.
The benchmark October gold future <0#JAU:> on the Tokyo Commodity Exchange closed up 36 yen per gram at 2,038 yen, after dipping to 1,993 yen. Earlier, it hit 2,039 yen, a new 15-year peak.
Other precious metals followed gold's lead.
Platinum <XPT=> rose to $1,002/1,006 an ounce, from $987/990 late in New York. On Monday, platinum rose to $1,006, its highest since March 1980.
Platinum's sister metal, palladium <XPD=>, was at $273/277 an ounce, the highest since April 2004, versus $271.50/274.50.
Silver <XAG=> rose to $8.75/8.78 an ounce, against $8.68/8.71 late in New York. Earlier, it hit $8.76, the highest level since August 1987.
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