Gold Rises to 27-Year High on Crude Oil Rally, Dollar Weakness

Posted by: admin
31 Oct, 2007

By Feiwen Rong and Glenys Sim

Oct. 29 (Bloomberg) — Gold climbed to the highest since January 1980 as crude oil rallied to a record and the dollar slumped to an all-time low against the euro, boosting the appeal of the precious metal as an investment. Silver also gained.

Gold has increased almost 25 percent this year, heading for the seventh straight annual gain, as rising energy costs spark demand for the metal as an inflation hedge. Trade expectations that the Federal Reserve may cut interest rates this week also damped the dollar while boosting the appeal of bullion as an alternative investment.

“Gold prices were markedly stronger, being bolstered by the low U.S. dollar, high oil prices, and expectations of a cut to U.S. interest rates,” said David Moore, commodity strategist at Commonwealth Bank of Australia.

Bullion for immediate delivery gained as much as $8.01, or 1 percent, to $793.21 an ounce, and traded at $792.99 at 11:52 a.m. Singapore time. The precious metal for immediate delivery reached a record $850 an ounce in January 1980. Silver gained 0.8 percent to $14.35 an ounce.

The dollar fell as low as $1.4422 per euro today, the weakest since the introduction of the 13-nation common currency in 1999, before trading at $1.4411 as of 11:54 a.m. in Singapore.

Crude oil rose to a record $93.19 a barrel in New York after Turkey’s Foreign Minister Ali Babacan said his government is considering “all options” including military action to deal with Kurdish rebels operating from Iraq, heightening concerns about potential supply disruptions.

Inflation

Base metals including copper, lead and zinc have also gained today on expectation demand from China, the world’s fastest growing major economy, will rise despite of prospect of slowing growth in the U.S. due to worsening housing slump there.

“Underlying concerns about Chinese inflation and the U.S. economy have risen over the past two months, providing further stimulus to the gold price,” analysts led by Jim Lennon at Macquarie Bank Ltd. said in a report today. The bank on Oct. 15 raised its forecast for gold to average $795 an ounce in 2008.

The December-delivery gold contract on the Comex division of the New York Mercantile Exchange gained $8.9, or 1.1 percent, to $796.40 an ounce at 11:52 a.m. Singapore time.

In Japan, gold for delivery in August gained 51 yen, or 1.7 percent, to 2,930 yen a gram ($798 an ounce) on the Tokyo Commodity Exchange at 10:49 a.m. local time. It reached as high as 2,931 yen a gram, the highest for the most-actively-traded contract since July, 1984.

Fed Cut

Gold have gained 9.5 percent since the U.S. Federal Reserve cut its benchmark Federal funds rates by a larger-than-expected 50 basis points to 4.75 percent on Sept. 18.

Losses at financial companies including Merrill Lynch & Co. last week also led traders to bet the Fed will cut its benchmark lending rates at its Oct. 31 meeting.

A Labor Department report Nov. 2 is forecast by economists to show U.S. employers created the fewest jobs this month since June, adding to evidence of a slowing U.S. economy.

“If the Fed does cut the interest rate this week, I certainly wouldn’t rule out the possibility of gold getting up to $800 an ounce or even go beyond that,” Commonwealth Bank’s Moore said.

http://www.bloomberg.com/apps/news?pid=20601012&sid=aDE0QtwxtPzc&refer=commodities

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