Gold prices soared to new records recently, on the back of oil’s surge, helped by geopolitical tensions and economic uncertainty.
The oil price hit $100 a barrel in trading last week, having increased 57% last year, according to Fortune magazine. This puts oil within reach of its all-time inflation-adjusted high of $102 a barrel.
However, a jump in US unemployment figures helped to soften oil’s price down to $94,96 on Monday.
Meanwhile, speculators are betting that oil might reach $200 a barrel by year-end. On the floor of the New York Mercantile Exchange (Nymex) the number of options purchased to buy oil at $200 leapt tenfold in the past two months to 5 533 contracts.
The number of $200 contracts is still extremely small in the context of the overall options market — and Kevin Norrish, director of commodity research at Barclays Capital, suggested that it would take a “massive supply shock”, such as another war in the Middle East, for the price to double this year.
“It’s not outside the bounds of possibility — but it’s a very extreme possibility,” said Norrish.
“It would have to be something cataclysmic — you would have to see a very large proportion of supply taken out of the market for that to happen.”
Spot gold surged to a fresh all-time high of $891,40 (Â£454,35) an ounce on Wednesday, breaking through the previous record of $881,10, which was hit on Tuesday.
Although gold drifted from this level in later trading, investors were still keen to snap up the metal, which is seen as a safe haven in times of market volatility. Lingering geopolitical tension in the Middle East also is convincing traders to buy gold.
“Gold is bullish. Funds are pouring into markets as they are performing well when stocks are slumping,” said Tatsuo Kageyama, analyst at Kanetsu Asset Management. “The speed of gold’s rise is very fast but the market is focusing on taking gold towards $900 in the near term.”
Gold rose about 30% last year and so far this year the price has risen 7%. By contrast, FTSE Eurofirst 300 index of European shares is down almost 3% since the start of 2008.
Barclays Capital predicts that gold might touch $1 000 at some point this year if the economic uncertainty continues to drive the upward trend. It also predicts an average oil price of $87,40 for 2008. It expects the market to remain tight, with demand strong in the United States and Asia and weak supply from non-Opec countries.