Gold touched its highest level in nearly five years on Friday as India and Pakistan edged to the brink of war and investors scrambled for the ultimate safe haven asset in turbulent times.
Gold was set or ”fixed” in London at $327,25 a troy ounce, its highest fixing level since October 16, 1997 to crown an 18% rally in the ”war commodity” so far this year.
The morning fix was declared by market makers at aristocratic merchant bank and bullion house NM Rothschild and Sons in London.
It followed the trend in the 24-hours a day spot market which briefly shot nearly $4-higher from overnight levels to trade as high as $329,50 in Europe, its highest level for two and a half years.
”The gold bull run is still very much in place,” said Ross Norman, analyst at TheBullionDesk.com.
A move above $330 an ounce looked very likely, Barclays Capital’s metals team said.
Bullion’s sparkling performance also boosted its sister metal silver which traded at its firmest level since June, 2000 to a high of $5,04 an ounce.
The rally has been spurred by gold’s safe-haven status amid the India-Pakistan crisis, a slumping dollar, violence in the Middle East and fears of a repeat terror attack on the US mainland.
”With sustained concerns over the equity markets, the dollar remaining under pressure and India-Pakistan tension seeming to build, the market is finding strong support…overall sentiment remains buoyant,” the industry-backed World Gold Council said in a market commentary.
The dollar’s slump against major currency markets this month, particularly the euro, and losses in global stock markets have also added to bullish sentiment since a weaker dollar makes gold more attractive to investors outside the US.
The dollar hit a 15-month low against the euro and a six-month low on the yen on Thursday, weighed down by concerns about the U.S. recovery and geo-political instability.
But gold’s upward march has also been interrupted by times of consolidation.
Late profit-taking in European trade ahead of an extended public holiday in Britain took a bite out of gold’s initial gains with bullion was set in the second and final fix of the London trading week at $326,60 an ounce.
Spot gold fell back to $324,80/325,30 an ounce by 1425 GMT, down from overnight levels in New York of $325,40/325,80 after stronger-than-expected reports of U.S. consumer sentiment and manufacturing boosted Wall Street to the detriment of gold.
Gold has shone this year and was fired through the key psychological level of $300 an ounce at the end of March when Israel launched its military offensive into the West Bank after a series of Palestinian suicide bombings.
A warning this month from US Vice President Dick Cheney that a repeat terror attack on the U.S. mainland was a near certainty has also been key in ratcheting the metal higher.
Jitters over the health of Japan’s banking system, the fallout from the collapse of US energy firm Enron and Washington’s threat of military action against Iraq have also provide further ingredients to the bull cocktail.
A decision by leading miners to cut the amount of gold they sold at fixed prices in forward markets has also been instrumental in fanning gold’s surge.
All these have combined to send gold equity stocks from North America to South Africa to record highs.
But further gains in the gold price were seen limited and way off historic highs.
”We believe that the gold market is vulnerable for…(a) pause for breath,” said John Reade, analyst at UBS Warburg.
Gold gained over $60 an ounce to breach $400 an ounce when Iraq invaded Kuwait in 1990 and topped $850 in 1980 against a backdrop of the Iranian Revolution and the Soviet invasion of Afghanistan which spurred unprecedented buying in gold.
That scale of investment is still a far-off dream for gold’s ultimate bulls. – Reuters