Daily Gold Update

Source: Financial Times

London— Commodities prices continued their march higher on increasing geo-political tensions, supply fears and strong demand. Gold broke through $600 a troy ounce while copper climbed above $6,000 a tonne for the first time and Brent crude and zinc also hit record highs.

Gold spot prices shot through the $600 an ounce level as geo-political tensions mounted. Gold hit $604, its highest level since December 1980, before easing back to $595.90 a troy ounce.

The Bank of France sold 161 tonnes of gold last year but said deciding whether to sell at the moment was a judgement on market trends. Dealers said this suggested French gold sales could be deferred if the Bank of France anticipated futher price appreciation.

Silver rose to a new 23-year peak at $13.01, supported by the anticipated launch of a US-listed exchange-traded fund.

Platinum also hit a record in US trade, peaking at $1,097 an ounce after Lonmin, the third-largest producer, said it had closed its largest smelter due to technical difficulties.

UBS said it estimated the closure of the smelter would reduce platinum smelting capacity by about 1,000 ounces per day, a small quantity unless the problem proved protracted.

The US government will pump $52.5m into studying fuel cells over the next three years, aiming to make them a viable technology by 202. During European trade, platinum eased back to $1,087 a troy ounce.

Industrial metals also recorded new record highs as inventories continued to dwindle in the wake of heavy demand.

Copper broke through the key $6,000 a tonne level but corrected rapidly from a peak of $6,001 to trade at $5,940.5.

Ongoing strike acion at Grupo Mexico�s copper mines have added to fears over supply and LME stocks have shrunk to less than three days of current global consumption.

Zinc also hit a new record for a fifth-successive LME session after inventories fell 2,500 tonnes. Three-month zinc peaked at $2,980 a tonne before eassing back to 2,955.

�Base and precious metals prices are considerably above what we consider to be fair value, based on fundamental supply and demand factors,� said John Reade at UBS. �But events of the past two years have demonstrated that investment and speculative flows are very capable of lifting prices well beyond fundamental fair value.�

Aluminium traded at $2,583 a tonne after Alcoa, the US producer, said it expected the alumina market to remain in deficit in 2006 and 2007. Traders said a continuing deficit could push aluminium to $3,000 a tonne.

Driving oil prices higher was the perceived threat of force against Iran over its nuclear programme. Although US president George W Bush called reports in the Washington Post and New Yorker of plans to attack Iran as �wild speculation�, the enthusiasm for oil was not damped.

Fears over Iran�s nuclear programme were heightened by comments from its president which indicated the country was about to announce it had successfully enriched uranium for use in fuelling atomic reactors. This would mark a serious setback to UN Security Council efforts to force Iran to suspend enrichment work and could accelerate the imposition of sanction by Western powers.

By mid morning in London Brent crude for May delivery was up 87 cents at $69.63 a barrel, fractionally below the $69.70 record hit earlier. Nymex West Texas Intermediate was up 69 cents at $69.43 a barrel, inching towards August�s record high of $70.85 a barrel.