Source: Reuters
London— Gold rallied to hit a new 25-year peak in Europe late on Monday as fund managers shifted more money into the metal on worries about inflation, economic growth and the dollar, analysts said.
The metal traded erratically during the day, climbing in Asian business to its highest since March 27, 1981, before slipping 1.6 percent in Europe and then rebounding to set a new high.
The market is targetting the key level of $550 an ounce.
"People have had for many years a very negative view of gold and that view is now changing. There is a lot of wealth creation in countries that have an affinity with gold," said Robin Edwards, president of UK-based Sabre Fund Management."
"People are allocating money to gold," he said.
Spot gold was quoted at $545.30/546.00 by 1640 GMT, compared with late New York levels on Friday of $538.30/$539.00. It fell as low as $535.30 on Monday.
At the peak, gold was up more than five percent from a week ago, 18 percent from some two months earlier and 30 percent from a year ago. The price has more than doubled in five years.
Market talk that China and other central banks in Asia — which jointly have $2.6 trillion in foreign currency assets — might be looking to diversify some of their reserves into gold had underpinned sentiment since late last year.
China said on Thursday it planned to explore new ways of using the country's foreign exchange reserves and broadening their investment scope. It has 600 tonnes of gold in its reserves, accounting for only 1.2 percent of the total.
"The risk of playing in the market from the short side is quite high currently. I still see further gains over the short term, but once it hits $550 then the sentiment could change," said Yingxi Yu, precious metals analyst at Barclays Capital.
No pressure to liquidate
Analysts said speculative positions in the U.S. market were high but had been stable for the past four to five weeks and there was no pressure on market players to liquidate.
"In the near term, we are very close to an important level of $550 and I would expect that we would trade (at that level) some time this week," said John Reade, precious metals analyst at UBS Investment bank.
Stronger gold prices elevated mining shares in Australia, the world's second-largest bullion producer after South Africa, but physical buying fell in many parts of Asia.
Newcrest Mining Ltd., Australia's biggest gold miner, rose as much as 5 percent and Lihir Gold Ltd. gained more than 6 percent.
Numis Securities Limited lifted its 2006 forecast to $500 an ounce from $475 in response to rapid rise in prices, buying by funds, inflation fears, falling mine output and rising production costs.
Dealers said worries about rising energy costs and general security concerns in the Middle East had prompted funds and investors to diversify away from equities, currencies and bonds.
Oil climbed to a three-month high, boosting metal's allure as an inflation-hedge, while the dollar fell to its weakest level against the yen in about three months.
Investors in Japan were absent due to a holiday but dealers and analysts noted fund buying from elsewhere in the region.
In other precious metals, platinum crossed a psychologically important level of $1,000 an ounce. Spot was at $1,001/$1,005 from $993/$998 late in New York.
Palladium rose to $274/$279 an ounce from $267/$271. Silver was up at $9.11/9.14 an ounce, versus New York's $9.09/$9.12.
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