Gold rallied to a seven-week high on Monday and close to a record high of $850 on speculative buying driven by a weak United States dollar and tensions in Pakistan following the assassination of opposition leader Benazir Bhutto.
Gold has risen more than 30% this year — the biggest annual gain since 1979 — as a number of factors, including a weak US dollar, record-high crude prices, credit-market turmoil and falling US rates, boosted its safe-haven appeal.
”There’s still a potential for further unrest in Pakistan following Bhutto’s assassination. I guess there’s a potential for us to push higher and test the highs at $847 at least,” said Darren Heathcote of Investec Australia in Sydney.
”I think $847 will be the initial technical point to breach. When London comes in, more stops get taken out,” he said.
Spot gold hit an intraday high of $843,20 an ounce before dipping to $842,60/$843,40. This was still higher than $837,80/$838,50 late in New York on Friday.
Gold hit a record high at $850 January 1980 on high inflation linked to high oil prices, Soviet intervention in Afghanistan and the effects of the Iranian revolution. After adjusting for inflation, that level was equal to $2 079 at 2006 prices.
The latest safe-haven buying was sparked by Bhutto’s killing last week, which plunged Pakistan into crisis. Electoral officials hold an emergency meeting on Monday to decide whether to go ahead with a January election that is aimed at shifting the country from military to civilian rule.
Bhutto’s killing in a suicide attack on Thursday triggered bloodshed across the country and rage against President Pervez Musharraf, casting doubts on nuclear-armed Pakistan’s stability and its transition to civilian rule.
”I think it’s possible to touch $850 in the near term. It moved in a massive range already in the past 24 hours,” said David Moore, a commodity analyst at the Commonwealth Bank of Australia in Sydney.
”It’s possible it might go higher in the near term. It’s obviously been supported by a number factors but probably the thin trading conditions are sort of exacerbating the movements in the gold price at the moment,” he said.
Thin trading in Asia ahead of the New Year holidays meant gold and other precious metals were prone to sharp fluctuations. Platinum dropped but held near last week’s record high of $1 542 an ounce. — Reuters