Precious metals race to new highs on oil, dollar

Reuters

Wednesday April 19, 3:40 pm ET
By Zach Howard

NEW YORK (Reuters) - A shaky dollar and record-high oil prices stoked the rally in precious metals prices on Wednesday, pushing gold and silver to new 25- and 23-year highs and lifting platinum to an all-time peak.

Dealers said investment buying was aggressive in gold amid inflation worries, political tensions in the Middle East and instability in currency markets, and many saw nothing to suggest the trend could be reversed right away.

"Really, the investment off-take is continuing unabated. It's crazy," said Bernard Hunter, a director at bullion dealer ScotiaMocatta in Toronto. "There's a lot of traditionally positive gold news out there at the moment."

Spot gold (XAU=) surged to $633.70/634.50 an ounce in late New York trading, the highest since December 1980, sharply up from $620.20/1.00 late on Tuesday.

Gold's latest rise has been largely sparked by Iran's dispute with the West over its nuclear aims, which is also a key factor driving oil above $72 a barrel.

"Oil has been a key driver, because it's a big part of the commodity baskets like Goldman Sachs' index. Oil is making these baskets perform, which is making people buy the baskets," said Jon Bergtheil, global metals strategist at J.P. Morgan.

But other factors also pulled investors into the market, such as news that core U.S. inflation rose in March at its fastest rate in a year.

A weaker U.S. currency, which hit a seven-month low against the euro (EUR=), was also contributing to interest in gold as the dollar-denominated metal became cheaper overseas.

Physical demand has perked up as well, ScotiaMocatta's Hunter said.

"We did see in the last couple of days some good physical demand emerging from India, which we hadn't seen, and the Middle East," he said.

But, he added, "There always is risk of a correction. It's been $50 or more so since gold has made a significant correction lower."

Gold rose in other currencies too, with prices per ounce (XAUEUR=R) jumping to a record high of 597.89 euros and hitting a two-decade high of 351.69 sterling. (XAUGBP=R)

Precious metals have soared in the past year and outpaced other assets, with silver gaining 103 percent, gold 47 percent and platinum 30 percent.

In the past 12 months, the Standard and Poor's 500 index (^SPX - News), an indicator of U.S. equity performance, rose about 14 percent, while the Dow Jones industrial average (^DJI - News) gained 12 percent. The dollar against the euro was up by 5 percent.

Traders and analysts were fully expecting more gains for bullion.

"From a technical standpoint, the next objective is $700," said Carl Birkelbach, president and chief executive of Birkelbach Management Corp. in Chicago.

"Unless something happens then that is extraordinary, I think it will flatten out there and then come down," he said.

Gold peaked at $850 an ounce in 1980, when Middle East issues were also an important price driver.

SILVER SPIKES, EYES $15

Silver gathered momentum from gold's rally, surging base metals prices and on speculation that a proposed U.S. silver exchange-traded fund would boost physical demand.

Spot silver (XAG=) rose to $14.60/63 an ounce -- a 23-year high -- versus $13.91/13.94 previously in New York.

Platinum (XPT=) hit a new record at $1,121 an ounce before inching to $1,117/1,121, up from $1,111/1,116.

In industry news, the world's third-biggest platinum producer, Lonmin Plc (LONJ.J)(London:LMI.L - News), said it expected to restart its biggest furnace this week, after shutting it this month due to a leak.

Palladium (XPD=) rose to $371 an ounce, the highest since August 2002, but later dropped to $365/370.

Base metals hit new highs as benchmark London Metal Exchange copper futures crossed $6,500 a tonne and zinc and aluminum futures surged upward.