Source: Marketwatch
San Francisco— Gold futures closed above $700 an ounce Tuesday for the first time since October of 1980, tallying a gain of more than 18% in just the past month, after hopes for a resolution of Iran's nuclear standoff faded and the U.S. dollar weakened, prompting investors to seek refuge among the precious metals.
"Underscoring the deteriorating Iran situation and U.S. dollar woes, the precious metals complex continues to gain new friends on a daily basis, regardless of prices not seen for a generation," said Jon Nadler, an investment products analyst at bullion dealers Kitco.com, pointing out that prices have climbed about $110 per ounce in the past month.
"At this point, the floodgates are open," he said.
Gold for June delivery climbed as high as $701.80 an ounce on the New York Mercantile Exchange, the highest futures level in almost 26 years, according to monthly charts from Thomson Financial. The contract closed up $21.60, or 3.2%, at $701.50. Futures prices are up more than 35% year to date and up almost 64% from the year-ago closing level.
Prices closed lower Monday for the first time in seven sessions as traders locked in some of the metal's recent sharp gains. The dollar fell to an eight-month low against Japan's yen and hovered around a one-year low against the euro Tuesday, helping to build support for gold.
Gold prices have climbed more than $40 since the beginning of May alone, propelled higher by a now familiar list of factors, including inflation fears, geopolitical worry, a weaker dollar and burgeoning demand from investment funds seeking better returns than are currently available in other asset classes.
Citigroup believes investors held commodity positions worth more than $120 billion April, with $30 billion in oil and $30 billion in gas. Gold came in third place at $13 billion, while the long position in copper stood at $4 billion, according to Investec Securities.
"As most people have dollar denominated assets, the quest for portfolio preservation is becoming a priority and chasing profits for the sake of pure return is taking a back seat until the skies clear," said Nadler.
Iran musings
Meanwhile, U.S. Secretary of State Condoleezza Rice said a letter from Iranian President Mahmoud Ahmadinejad — Iran's first communication with the U.S. in 27 years – contained nothing new in the way of proposals that might help break the nuclear stalemate with the West, the Associated Press reported.
While details of the letter have not yet been released, it is understood to criticize Bush for the Iraq invasion and for his handling of the Sept. 11 attacks on the U.S., among other things, AP said.
"Overnight it became clear that, as had been suspected, the written message from Tehran to the White House contained not much more than platitudes and criticisms," said Nadler. "Thus, the U.S. administration is downplaying the episode and its significance, while the U.N. continues to be mired in inaction."
Ministers came away from a meeting of the U.N. Security Council with Russia and China refusing to back the resolution favored by France, the U.S. and the U.K., that would open the door to trade sanctions against Tehran, according to news reports.
Gold's journey
The pace at which gold prices have been expanding has been surprising, said Matthew Parry, an economist at Moody's Economy.com.
He emphasized, however, that his company "does not … envisage the current bull run having much further to go once $700 has been broken."
"Assuming the recent escalation of geopolitical tensions subsides going forward, and global inflation comes under control, the price of gold should return to negative territory, falling back below $600 in 2007 as numerous new supply projects are expected to come on-stream," he said.
Indeed, Nadler warned that "a correction is still in the cards" and "it could be a brutal one."
The market will "simply have to live with $20 to $50 daily swings for the time being," he said. "Tread with caution, but do not abandon protective positions."
On the other hand, there is an "alternative upside-pricing scenario," said Parry.
"If the U.S. was to lead a military attack on Iran then we would enter doomsday territory, and the markets would put renewed faith in gold's alternative asset status," Parry said.
"Under such a scenario we would not be at all surprised if gold prices tested quadruple figures," he said.
Platinum's record
Other metals futures finished higher along with gold Tuesday, with the platinum group metals leading the way.
July platinum galloped to a new record at $1,243 an ounce, then closed up $37.40, or 3.1%, at $1,239.30, while June palladium rose $19.65, or 5.2%, to end at $394.90 an ounce, tapping at $395, a level not seen since 2002.
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