Global Worries Spark Investor Rush into Gold

December 13, 2002
By Amanda Cooper

LONDON (Reuters) - Investor fears of war, terror and nuclear weapons kept the gold bulls charging into the bullion market as the spot price chalked up more gains to hold at a three-year high.

A cocktail of flaring political tensions, spiking oil prices and a slump in the value of the dollar sent an already buoyant spot price up by another percentage point, and bringing a three-year-old high of $338.00 firmly into gold's sights.

"I expect to see $338.00 in New York and then we'll take a look at what the euro's doing at that level against the dollar, and take stock," one London-based trader said.

The spot price <http://www.reuters.co.uk/quotesHome.jhtml?ticker=XAU=&qtype=sym&qcat=news>XAU= hit $335.00 an ounce in early European trade, rallying from its previous close in New York at $331.20/331.70, and held at a firm $334.00/334.75 at 0920 GMT.

"You've got the North Korea problem and you've got the Iraq problem," a Japanese-based broker said earlier. "But you also had a slightly softer dollar, which kept gains in check."

The October 2003 TOCOM contract <http://www.reuters.co.uk/quotesHome.jhtml?ticker=JAUV3&qtype=sym&qcat=news>JAUV3 settled up 25 yen at 1,311 yen per gram, a level not seen by benchmark gold since early February, when the spectre of a financial crisis sent Japanese savers scurrying for safe assets.

Turnover was heavy as speculators snapped into action after bullion's overnight rise to around three-year highs, pouring money into precious metals and energy futures.

NUCLEAR WEAPONS

News that Washington was prepared to use nuclear weapons to respond to any Iraqi attack with weapons of mass destruction added to tensions, even as U.N. officials widened arms inspections that could determine war or peace in the Gulf.

The dollar shot lower against other major world currencies, surrendering have a percentage point to the euro, which rose to $1.0226 at 0920 GMT, and down to a one-month low against the Swiss franc -- another traditional safe-haven.

Meanwhile, the United States turned up the diplomatic heat after North Korea decided to reactivate a nuclear power plant at the centre of an arms crisis that took an old Cold War flashpoint to the brink of war in the 1990s.

"Japanese investors don't care too much about world events -- as you know, Japan is an island country," a brokerage analyst said. "But the North Korea problem is close to home, and that has fuelled fears a bit."

The gold price has gained nearly 20 percent over this as political instability has grown, economic uncertainty has battered equity markets and investor confidence has been severely bruised by a string of high-profile corporate accounting scandals.

Gold last reached $338.00 in October 1999 when 15 central banks, including those under the European Central Bank, and the United Kingdom, Sweden and Switzerland signed a pact to limit their lending and sales of metal for five years.

The Washington Agreement, as the deal signed in September 1999 was known, caused a surprise $70 spike in the price, which had been floundering near 20-year lows.

"The move to $338.00 was a very brief spike, this has been more of a gradual rise, and although this (rise to $335.00) is another spike, it is not as extreme. Needless to say, we could see $338.00 and buy-stops taken out at that level," the London trader said.

Limited central bank lending, coupled with a sharp decline this year in hedging, or forward sales, by the gold mining community, has also contributed to the smoother rise in the price of gold.

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