May 20, 2002
LONDON (20 May) - Gold hit its highest level in 27 months on Monday as investors piled into the safe haven asset in face of a sick dollar and fears of renewed violence in the Middle East.

Gold hit $314.00 a troy ounce shortly after the end of European trading, gaining $3 from Friday levels to touch highs not seen since February, 2000.

Dollar weakness, which makes the precious metal more attractive to investors outside the United States, stoked gold's rally, traders and analysts said.

"With the U.S. dollar on the ropes, at least for now, the yellow metal should remain firm," said John Reade, metals analyst at UBS Warburg.

In European trade, the dollar fell to eight-month lows against the Swiss franc (CHF=), a 7-1/2 month trough against the euro (EUR=) and a five-month nadir against the yen (JPY=) as it extended last week's losses. Analysts said that after years of ignoring the massive U.S. trade imbalance, the market is now paying increasing attention to the deficit, which weakens a currency.

Many precious metals analysts see a strong inverse correlation between gold prices and the U.S. dollar index which is at its lowest since October.

"Further weakness in the dollar or profit-taking in the equity markets will almost certainly attract fresh investment," said Standard Bank in London.

"Gold will continue to gain support from the fund community during the week ahead as they protect their long positions which have risen to their highest levels on over six years," it said.

MIDEAST VIOLENCE

Tension in the Middle East and on the India-Pakistan border also supported the precious metal.

A Palestinian blew himself up near a police patrol in northern Israel on Monday in the second suicide bombing in less than 24 hours, but killed only himself, police said.

The blast, one day after a suicide bomber killed three people in the coastal city of Netanya, raised fears of a new wave of suicide bombings after a lull in violence that world leaders have been trying to build on to revive peace efforts.

Gold shattered the psychologically important level of $300 an ounce at the end of March when Israel launched its military thrust into the West Bank after a series of Palestinian suicide bombings in Israel.

The India-Pakistan situation also lent background support to the gold price as forces from the two nuclear-armed neighbors traded fire across their frontier for a fourth day.

Dollar weakness, stock market selling, jitters over Japan's banking system and a move by miners to reduce the amount of gold they sell in forward markets have also combined to fuel gold's rally this year.

These crowned a winning streak that has taken gold 13 percent higher since the start of this year and lifted a market which was at 20-year lows just two years ago.
 
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