Oil, dollar moves push gold to lofty heights
GOLD futures surged to an all-time high above $US880 ($A1012) an ounce this week as traders bet that rebounding oil prices would boost demand for the metal as a safe haven investment.
Still, when adjusted for inflation, gold remains well below its all-time high. An ounce of gold at $US875 ($A1006.61) in 1980 would be worth $US2115 ($A2433) to $US2200 ($A2530) today.
Gold has soared during the past year, boosted by rising prices for oil and other commodities and also by the falling US dollar. Those trends have increased the metal’s appeal as a hedge against inflation. Gold is also seen as a safe investment in times of political and economic uncertainty around the world.
Hedge and pension funds, along with other long-term investors, also flocked to gold as the subprime mortgage crisis in the US intensified. Driving the push to this week’s fresh record was a stream of discouraging news, including comments by Treasury Secretary Henry Paulson that a correction in the housing market was ‘‘ inevitable and necessary’’.
Also weighing on investors was word that Bear Stearns chief executive James Cayne was resigning under pressure from shareholders upset over the firm’s losses. But analysts were not predicting a relentless march higher for gold. They said a corrective sell-off could follow its spike higher.
‘‘ Gold traders see some resistance near $US880 ($A1012) and $US890 ($A1023) and are probably mindful of the large number of long positions in the market but that is not stopping them from trying to test the highly rarefied air found at these levels,’’ Jon Nadler, senior analyst at Kitco Bullion Dealers, wrote in a note.
As fund investors pour money into the market, however, demand from the retail sector and individuals — who drove gold to its previous record almost three decades ago — is weaker.
‘‘ They’re not, apparently, lining up around the block like they did in January 1980,’’ Nadler said. ‘‘ I don’t know how much longer the funds are going to see rewards.’’
Gold ended 2007 up almost 32 per cent. The recent surge in oil prices to $US100 ($A115.04) a barrel has helped boost the price of the metal.
Another major driver behind gold’s advance from less than $US650 an ounce in January has been the dollar’s precipitous drop against the euro. A cheap dollar can make commodities more attractive as an alternative investment, and can also raise demand from foreign buyers as their currencies gain strength.
Growing demand for gold jewellery in India and China has also contributed to increasing prices over the past several years.
The sharp run-up in precious metals — an ounce of gold cost $US680 in mid-August — has made jewellery more expensive over the past few months. AP
All that glitters: Gold is on an upward spiral