Gold hit record highs on Friday as eurozone sovereign debt concerns, worries over inflation and expectations US monetary policy will stay accommodative all conspired to lift the precious metal. Silver is also holding near its earlier 31-year high at $42.68. The metals retreated from highs as the euro slipped in mid-afternoon trade, but regained traction after US consumer confidence data pulled the dollar from highs.
-- Silver reaches 31-year high above $42/oz
Spot gold was at $1,480.30 an ounce at 1425 GMT, versus $1,472.90 late on Thursday, having earlier hit a record $1,481.14. Silver was at $42.60 against $42.08. US gold futures for June delivery rose $9.30 to $1,481.70. "Gold is still in a healthy upward trend," said LGT Capital Management analyst Bayram Dincer. "You have so much uncertainty over whether the US economy will recover, what the next monetary policy step will be."
"I don't think real interest rates will be (a drag) in the short term or medium term for the gold price," he added. "As long as the opportunity cost for gold holding is low, we will see higher prices." Gold eased back from a record high mid-afternoon as the euro fell versus the dollar on worries over the euro zone financial crisis, after more talk that Greece may be set to restructure its debt and a Moody's downgrade of Ireland.
While in the short run gold is sensitive to any move lower in the euro, in the longer term these fears are set to support the precious metal. "The market has been reacting to (the credit issues in peripheral Europe) by looking for ways to protect themselves from these types of risks, and gold is seen as a way to do that," said Deutsche Bank analyst Daniel Brebner.
He said the main impact on gold of elevated debt levels in Portugal, Greece, Ireland and Spain came from the ways in which euro zone authorities addressed the issue. "Do we see a bailout, do we see more money being extended into these countries, do we see monetary accommodation remaining very much the bias in Europe?" he said. "If that's the case, that should be very supportive of gold markets."
China and India reported higher-than-expected inflation readings on Friday, giving fresh ammunition to central bankers and investors alike who are worried about mounting price pressures in the global economy. Gold, which is often seen as a hedge against inflation, would likely benefit if inflation pressures rise significantly. Among other commodities, oil prices turned higher as the dollar retreated and remain near multi-year highs as fighting in Libya continues, supporting fears output could be hit. Stronger oil prices also tend to benefit gold prices.
Goldman Sachs recommended investors go underweight commodities over a three to six month horizon, echoing its call from Monday, saying oil prices are higher than justified by current supply and demand. But gold prices look set to remain firmly underpinned. "The bullion market has found support one day from economic uncertainty and changes in risk sentiment, and on another day by high oil and food prices, and on yet another by sovereign risk and fiscal concerns," said HSBC analyst Jim Steel in a note. Among other precious metals, platinum was at $1,789.74 an ounce against $1,786.49, while palladium was at $770.50 against $760.63.
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