Gold hits record at $1,000 an ounce

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Gold hits record at $1,000 an ounce
By Javier Blas and Chris Flood in London

Published: March 13 2008 16:49 | Last updated: March 13 2008 16:49

Gold prices hit a record of $1,000 a troy ounce on Thursday as investors sought refuge from the weakening US dollar.

The trades above $1,000 an ounce in the London spot bullion market were confirmed by several banks, although the actual level was the subject of some controversy as it was not reflected on several of the trading systems used by banks in London and New York.

traders at UBS in London said they traded at above $1,000 an ounce. Société Générale in London also confirmed the trades and other bankers said they saw spot prices above $1,000 an ounce.

A spokesman for the London Bullion Market Association, the industry body, confirmed trades above $1,000 an ounce on the EBS electronic platform. The afternoon fix was set at $995.00 an ounce, the LBMA said.

Spot bullion in London, the industry main benchmark, rose to an all-time high of $1,000.45 an ounce, up nearly $17 on the day, on the EBS screens. In New York, the less significant Comex gold future prices hit a record of $1,006.3 an ounce.

The surge came as the dollar fell to a record low against the euro and to a 12-year low against the yen. Precious metal analysts warned that further prices rise were likely if the weakness of the dollar continued.

Tobias Merath, head of commodity research at Credit Suisse in Zurich, said that the combination of dollar weakness, negative real interest rates and surging inflation was “the ideal environment for rising gold prices.”

“We expect further price gains in the coming months,” Mr Merath said, although he warned that the “gold price rally is now entering a more mature phase” in which price increases were unlikely to continue as sharply as they have done in the last few months.

Gold has surged more than 55 per cent in the last year as investors poured money into the precious metal. Supply disruption in South Africa, the world’s second largest producer, has provided additional support.

The rally, however, has dented jewellery demand, leaving the gold price without one of its traditional supports, analysts said.

Stephen Briggs at Société Générale said that the recent surges had been driven almost exclusively by investment and speculative forces, and underlying physical demand had been struggling. He noted that jewellery demand in India, the world’s largest consumer of gold, fell by two-thirds in the final quarter of 2007.

The rise in gold prices was mirrored in the crude oil market, which hit fresh highs. West Texas Intermediate rose to $110.94 a barrel while Brent hit $107.55 a barrel, also a fresh record.

Stephen Walker, director of global mining research at RBC Capital Markets, said bullion was pushing into new territory. Long-term trends that should help support gold prices above $1,000 included declining mine production, growing demand from increasingly affluent populations in emerging markets, and investors continuing to seek hard assets as global inflationary pressures rise.

He expects gold to trade in a range of $975 to $1,025 in the short-term, then weakening to around $900 in the seasonally weak mid-year period, followed by a rebound above $1,000 beginning in August or September.

James Steel, precious metals analyst at HSBC in New York, said the ongoing deterioration in global credit markets and new highs in the euro was fuelling gold’s advance.

“The bullish situation is complemented further by a weak stock market and strong commodity prices, particularly oil which appears firm at $110 a barrel. This bullish confluence of factors has created a near perfect storm for appreciating gold prices,” Mr Steel said.

The latest surge in gold prices, however, is less impressive when adjusted for inflation. In real terms, bullion would need to be about $2,200 to match the price achieved in 1980, according to the industry-backed World Gold Council.

However, bankers said the gold price looked more solid than it did at the time of its previous peak of $850 a troy ounce, reached in January 1980. Just 10 days after hitting that record, spot bullion fell below $700 just 10 days after hitting that record – and traded below $500 less than two months later.