Rampant gold ends at new 24-1/2-year high


By Martin Hayes 31 minutes ago

LONDON (Reuters) - Gold prices settled higher and carved out a new quarter-century peak in another day of choppy trading on Thursday, as investment funds remained keen to keep bullion in their portfolios.

Gold had touched a 24-1/2-year high of $519.80 an ounce by midafternoon in New York, as speculators persisted in buying an asset that is outperforming stocks and bonds.

A brief bout of profit-taking seen earlier in Europe and New York had petered out by the close, dealers said.

At last check, spot gold was worth $519.50/520.30 an ounce, up from $513.90/514.70 at Wednesday's New York close.

"Its current stratospheric performance is a combination of three factors: strong fundamentals, a rampant commodities sector, with most base and all precious metals at multiyear or all-time highs, and massive investor interest led by the Japanese," Paul Merrick of RBC Capital Markets said.

"It could move $25 in either direction -- so we could see a pull-back, but it is going to be bought on dips. It will stay strong, although it is likely to be quiet for the next few days," a gold trader said.

Others said gold remained vulnerable to fund and other selling after recent steep gains on inflation worries, high oil prices and fund interest.

" ... Gold looks increasingly vulnerable to a nasty correction lower which could see the metal drop back to $500 in the blink of an eye," James Moore of the BullionDesk.com said.

Darren Heathcote, head of trading at N M Rothschild in Sydney, said current prices appeared unsustainable due to large long positions on the New York Mercantile Exchange's COMEX division and the Tokyo Commodity Exchange (TOCOM).

At the New York Mercantile Exchange's COMEX division, February delivery gold was up $4.90 on Thursday to close at $522.70 an ounce. Its session high of $523.90 was the strongest benchmark gold futures price since April 1981.

Gold 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.

"Momentum traders will not want to sell -- if this month's trajectory continues then gold will be at $568 by year-end and $649 by the end of February," Merrick said.

Despite the likelihood of a downward reaction, the market is strongly supported by its broad fundamentals.

"Gold is the hedge to have when you're not quite sure what you're hedging against," broker Goldman Sachs said in a report.

"This 'generalized uncertainty' role for gold looks even more relevant today -- uncertainty over the medium term outlook for the dollar looks set to remain," it said.

Tight supply, strong demand and speculation that some Asian central banks would increase gold holdings in their reserves are similarly supportive, although India recently confirmed its policy toward gold remained passive.

But Russia, Argentina and South Africa have expressed interest in increasing their gold holdings, even though European central banks have sold over 100 tons since September.

Other precious metals were stable.

Platinum climbed to $998/1,0003 an ounce, from $991/996 previously in New York. On Monday platinum rose to $1,006, its highest since March 1980.

Palladium was steady at $278/282 after reaching $278, its highest since April 2004.

Silver firmed to $8.88/91. It earlier hit $8.89, its highest since mid-1987.

(Additional reporting by Zach Howard in New York, Jae Hur and Rajat Bhattacharya in Singapore)