Gold surged above $910 on Monday, setting another historic high as the continuing slide in the dollar and expectations of sharp interest rate cuts by the Federal Reserve prompted investors to snap up the metal.
Spot gold leapt to an all-time high of $914 an ounce, charging past the record of $900,10 set at the end of last week, before settling lower in later trading.
Analysts at Citigroup predicted that prices will break through $1 000 an ounce this year. “There is blue sky ahead of us and there is room for gold to go higher,” said Darren Heathcote at Investec. “We are in uncharted territory. We have a weaker dollar and that’s encouraged people to buy gold.” The dollar slipped to a one-and-half-month low against the euro and the yen.
Investors expect borrowing costs to fall by a half-point to 3,75% at the Fed’s meeting at the end of the month and interest rate futures are pricing in the risk of an emergency cut before then, further eroding the dollar’s appeal.
A weaker dollar makes gold cheaper for holders of other currencies, boosting demand. Gold is also seen as a safe haven in times of economic uncertainty. Fears of further write-downs from big financial institutions and concern that the United States may be on the brink of a recession have also increased the metal’s appeal.
John Hill, director of metals research at Citigroup, said the strength of the gold market was attracting new investors while others were buying to hedge against signs of rising inflation. Oil prices have reached record highs above $100 a barrel while the prices of corn, wheat and soya beans have also risen sharply.
The soaring gold price comes as a blow for many jewellery retailers. In Singapore, physical dealers have already noted limited demand from jewellers, who are entering a crucial trading period. Monday saw many Indians celebrate the Sankranti festival, which marks the start of a period during which Hindu marriages will be held. Gold forms an essential part of the dowry basket and India is the biggest consumer of the precious metal, followed by the Chinese, who celebrate their new year next month.
Tiffany, whose main store on Manhattan’s Fifth Avenue was supported largely by foreign visitors last year, has already issued a profit warning.
Signet, the jewellery group that operates under the names of H Samuel and Ernest Jones in Britain, has sounded its second profit warning in six weeks.
Gold has jumped 50% in the past year. Its annual rise last year was the strongest since 1979 and it has gained nearly $120 an ounce since hitting a low of $795,30 just before Christmas last year.
“Gold could still go higher, but we don’t think this is a right time for buying,” said Robin Bhar, metals analyst at UBS investment bank. “We would need to see a close above $900 that would be constructed as a bullish sign. But fundamentally we are very cautious. There is a risk of a $50 to $100 correction at any time.”
The strength of gold boosted the price of many other precious metals. Platinum hit a record high, silver prices were touching a 27-year peak and palladium rose to its highest level in more than two months. — Â