Gold hits new 25-year peak, platinum sets record

Reuters | May 10, 2006
By Atul Prakash

LONDON - Gold jumped to a new 25-year high above $704 an ounce on Wednesday as a weak dollar prompted fresh buying, while investors lifted platinum to a record peak.

Sharp gains in recent weeks have left prices vulnerable to deep corrections lower, but dealers saw no big sell-off in the immediate future.

"There is further room to the upside and the market will continue looking for big round numbers," a precious metals analyst in London said.

"The weakness in the dollar is likely to continue. Overall uncertainty in the macro-economic environment over global imbalances, particularly in the U.S., is keeping interest (of investors) in the gold market."

Spot gold <XAU=> touched $704.50, the highest since September 1980, before falling to $702.90/703.90 by 1001 GMT, against $699.90/700.90 in New York late on Tuesday.

Gold has risen more than 35 percent this year as investors diversify into precious metals as a hedge against global tensions, including those over Iran's nuclear ambitions, rising energy costs and uncertainty about the dollar's outlook.

The dollar hit one-year lows against major currencies as investors speculated the U.S. Federal Reserve will hint at a pause in rate rises at its meeting later.

A weaker U.S. currency makes dollar-denominated gold cheaper for holders of other currencies.

"Renewed fears of Iran's nuclear program continue to add impetus to firming gold prices," said John Meyer, analyst at Numis Securities.

"The ongoing devaluation of the dollar is another factor pushing up gold prices as the yellow metal provides a hedge against the dollar," he added.

CHINA RESERVES

Oil prices held above $70 a barrel as an expected build in gasoline stocks in the United States was countered by renewed fears over Iran's nuclear stand-off with the West.

Oil had lost on Monday after Iranian President Mahmoud Ahmadinejad wrote to his U.S. counterpart, but gained as he made no proposals for resolving the row over Tehran's nuclear plans and Washington was dismissive of the letter.

As spot gold rose above $700, benchmark gold futures <0#JAU:> on the Tokyo Commodity Exchange rallied by a daily limit of 60 yen to 2,538 yen per gram.

Traders said reports that economists had urged China to quadruple its gold reserves to 2,500 tonnes from the current 600 tonnes had also spurred the rally on Tuesday.

China, the biggest holder of foreign exchange reserves at more than $875 billion, is the third-largest gold consumer in the world. But some dealers doubted China's central bank would buy gold at high prices.

"We've been talking about China increasing its reserves for half a year and I doubt it that it's going to happen. People made use of this to push up the price last night," said a dealer in Hong Kong.

Platinum <XPT=> spiked to a record high of $1,265 an ounce before moving to $1,258/1,263, against $1,235/1,240 in New York.

Dealers said platinum's rise was driven by the view that Johnson Matthey <JMAT.L>, the world's top distributor of the metal, will produce a bullish report on the market next week.

The company will release a report to coincide with a platinum industry event in London that starts on May 15.

Palladium <XPD=> rose to a four-year high of $394 an ounce before easing to $392/397, versus $389/394 in New York. Silver <XAG=> was steady at $14.44/14.54.

(Additional reporting by Lewa Pardomuan in Singapore)

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