December 9, 2005
CNN
LONDON (Reuters) - Gold fever took prices to $525.50 an ounce for the first time in nearly a quarter of a century Friday as investors, particularly in Asia, rushed to buy an asset that has gained some 15 percent in the past month alone.
"The impetus for this buying is coming from the Far East... and it is difficult to see where the selling will come from at present," a trader said.
Spot gold was at $524.30 an ounce in premarket trading, versus $522.70 last quoted in New York on Thursday. The metal has soared $70, or 15 percent, since Nov. 7.
Gold's tight supply, healthy global demand, worries about inflation and growing fund interest in precious metals and other commodities has unleashed a wave of speculative buying, defying warnings that the market was overbought.
"The activity in the bullion market remains very impressive, with aggressive buying of any dips and a dearth of selling in the rallies helping to create a bullish chart pattern of higher lows, and higher highs, thereby attracting more momentum-based fund buying," Alan Williamson of HSBC said.
Fund managers were buying as part of a strategy to diversify portfolios, while some investors were speculating about potential purchases from some of the word's central banks -- previously long-time sellers.
"I strongly believe that Asia and China are buying -- but we will not know until they've finished buying or are close to it, for sure," Juerg Kiener said, chief investment officer at Singapore-based hedge fund Swiss Asia Capital, referring to central banks in the region.
A spokesman at China Gold Exchange said: "We have encouraged the Bank of China to buy more gold, or if not, to relax the barriers and allow more Chinese people to do so."
However, he said he was not aware of the central bank's policy on the matter.
In November, Russia, Argentina and South Africa expressed interest in increasing their gold holdings, even though European central banks have sold more than 100 tons since September.
Oil rekindles inflation fears
A rise in oil prices, rekindling inflation concerns, and aggressive Japanese buying supported gold, which is used in jewelry and as an investment.
On Friday, U.S. crude extended its rally to a five-week high above $61 a barrel and natural gas pushed deeper into record territory as a chill gripped the Northeast and Midwest, driving up heating fuel demand.
But many are wary of a fund selloff due to heavy long positions on the New York Mercantile Exchange's COMEX division and the Tokyo Commodity Exchange. The price of gold has gained about 20 percent this year and has doubled in about five years.
"After $525, we could see $530, but the market is nervous about getting too long. If you get caught in December it is difficult to get it back, as we are running out of trading days," the first trader said.
In other precious metals, platinum was at $1,003 an ounce, against $1,002 late in New York. It earlier rose as high as $1,003 against Monday's peak of $1,006, the highest since March 1980.
Sister metal palladium was at $302 an ounce, the highest since April 2004, versus $282.
Silver was at $9.01 against $8.91 late in New York. Silver earlier hit $8.99, its highest since May 1987.
http://money.cnn.com/2005/12/09/markets/gold.reut/