Steve Quayle News Alerts

December 19, 2002
By Clare Black

LONDON (Reuters) - Gold came off the boil on Thursday afternoon as some investors cashed in profits after the precious metal chalked up a near six-year peak on increasing fears of war in Iraq and a weaker dollar.

Often a haven in times of trouble, gold has soared around 25 percent this year, spurred by fears of conflict in the Middle East, a weaker dollar, falling equity markets and rising oil prices, making it one of the best performing financial assets.

"It's like a sleeping giant that's just woken up, we've almost forgotten just how quickly gold can move and how dramatic it can be," said UK-based independent commodities analyst Cliff Green.

Bullion was set or "fixed" in the London afternoon session at $345.00 a troy ounce, down on the previous fix of $345.70 which was its firmest fix level since May 1997.

The latest surge came as Washington prepared to issue its verdict on the 12,000-page Iraqi arms declaration.

Secretary of State Colin Powell was expected to say on Thursday that the declaration contained omissions that amount to a violation of a U.N. Security Council disarmament resolution, U.S. officials said.

U.N. chief weapons inspector Hans Blix said shortly before he addressed a closed session of the Council that gaps remained in Iraq's declaration.

He was unlikely to go as far as saying Iraq is in violation of the resolution as the United States appears set to do once Blix has spoken.

Dollar woes also burnished gold's luster, as the greenback wobbled near recent three-year lows against the euro and hit a four-year trough against the Swiss franc.

At one point in hectic Asian trading early on Thursday, spot gold surged more than $13 above New York's late price to reach $353.75 an ounce, its highest level since March 1997.

The yellow metal subsequently lost some of its shine, dipping down to a low of $343.15 an ounce in Europe, but then chopped back up to trade at $347.20/347.95 an ounce at 1550 GMT, up $5 on New York's close.

"I don't think this market is going below $341.00...I believe there's a head of steam, the market's got its boots on and...is behaving a little irrationally," said Peter Hillyard, head of European metals sales at ANZ Investment Bank.

"There is good fund buying and every dip is bought."

NEW DAWN FOR GOLD?

Historical price patterns for gold suggest that the metal is ripe to break free from a multi-year bear trend, although it would have to hold above the $350 level to confirm this.

"Gold has reached a crucial pivotal point. It is probably going to be the most important period of any since the 1980 highs around $800," said London-based analysts at J.P. Morgan in a report.

"Gold will either stall at this major $350 resistance area, signaling that the three-year range and the 15-year downtrend is intact, or will blast higher, sustaining its recent gains," they said.

Analysts said the yellow metal could do with taking a breather -- having gained over 10 percent since the start of December alone -- to avoid becoming overheated.

However, gold has a history of price volatility. It is still well below a record high of $850 an ounce fetched in early 1980 and within 24 hours of the start of the Gulf War in January 1991, it fell more than $25 from just above $400.

The move into gold has coincided with an ailing dollar, depressed equities and oil prices surging above $30 a barrel to three-month highs.

"The relative attractiveness of gold in time of great economic uncertainty, with particular concerns over debt-inflation and U.S. dollar weakness, is improving," Merlin Marr-Johnson of HSBC said in a report.

http://www.washingtonpost.com/wp-dyn/articles/A11800-2002Dec19.html