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Gold scores 28-year on record-high oil, eyes $800

SINGAPORE - Gold rallied to its loftiest level in nearly three decades on Monday as speculative buying gained pace after crude oil struck a record high on tensions in the Middle East and the US dollar tumbled to an all-time low.

Not to be outdone, platinum touched a record high, silver rallied to its best level in eight months and palladium hit a two-week high. Physical trade came to a standstill as jewellery makers watched gold prices gyrate.

Spot gold hit a high of $792.90 an ounce, its best level since January 1980, which was also driven by expectations the US Federal Reserve will cut interest rates this week. Gold was last quoted at $783.80/784.30 late in New York on Friday.

“I think the market will aim for $800,” said Darren Heathcote of Investec Australia in Sydney.

“I suspect there will be some selling pressure just before, should we get that high. But certainly, the fundamental reasons are still holding good that oil prices are high and there’s geopolitical concern and the dollar is weak,” he said.

The new benchmark October 2008 gold contract on the Tokyo Commodity Exchange, which debuted on Monday, hit a 23-year high of 2,940 yen per gram after opening at 2,922 yen.

Gold scored an all-time high of $850 in January 1980, when investors bought the metal heavily on high inflation linked to strong oil prices, Soviet intervention in Afghanistan and the impact of the Iranian revolution.

After adjusting for inflation, that level was equal to $2,079 an ounce at 2006 prices, according to metals consultancy GFMS Ltd.

Gold has risen more than 20 percent this year as record-high oil prices elevate its role as a hedge against inflation and a struggling dollar lifts its appeal as an alternative investment.

A lower dollar makes gold, which is denominated in US dollars, cheaper for holder of other currencies.

“All news is in favour of gold. Maybe we’ll see $800 this week,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

There was only light selling on the physical side, which suggested that investors were waiting for more rises before cashing in,” said Leung.

Oil hit a record high above $93 a barrel on Monday on winter supply fears and as Turkey’s attacks on Kurdish rebels sparked worries of supply disruptions from northern Iraq.

There are also concerns over the potential wider regional fallout if Turkey follows through with threats to launch attacks inside northern Iraq if necessary.

“Gold is pushing upwards on safe-haven buying to hedge against a declining US dollar. The market is pricing on the Federal Reserve’s interest rates cut,” said William Kwan, a dealer at Phillip Futures Pte Ltd in Singapore.

He pegged gold’s upside target at $810 an ounce.

The dollar tumbled to a record low against a basket of major currencies on expectations the Fed will cut interest rates this week and possibly again later this year.The dollar’s trade-weighted index against six major currencies fell as low as 76.89, an all-time low.

The Fed is widely seen cutting rates by a quarter-point to 4.5 percent on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market’s downturn.

“I believe silver is still a bit lagging. If investors or market players wish to take note of any good investment for this week, look at silver,” said Kwan of Phillip Futures.

“Maybe silver can try $14.90 first for the week,” he said.

Silver hit an intraday high of $14.36 an ounce, its best level since late February and up from $14.20/14.23 late in New York.

Silver hit a 25-year high of $15.17 in May last year, and dealers said the growing popularity of exchange-traded funds would also generate investor interest.

Platinum rose to an all-time high of $1,463 an ounce to reflect gains in gold. It was last quoted at $1,454/1,458 in New York.

Palladium hit a bid high of $373 an ounce, higher than $372/376 late in New York.

COMEX futures rose in Asia, with the most active December contract up $8.6 an ounce at $796.1 from the New York settlement.

Bullion used to back StreetTRACKS Gold Trust, the world’s biggest gold exchange-traded fund, climbed to a record 597.53 tonnes on Friday. However, the tonnage growth of the gold ETFs has slowed in October, analysts said.