US gold futures settled at a fresh 25-year high on Wednesday as investors who are bullish on the metal's prospects added positions due to dollar weakness before the US Federal Reserve raised rates, analysts said.
In other precious metals, platinum shot to a lifetime high, while silver and palladium pulled back a bit on profit taking. June delivery gold on the New York Mercantile Exchange's Comex division was up $4.20, or 0.6 percent, at $705.70 an ounce, after trading from $695.50 to $706.80.
The day's peak marked Comex gold's highest since September 1980. It set a record above $870 in January of that year. A falling dollar, US-Iran tensions and near-record oil prices have combined to drive gold and the precious metals higher, though the technically overbought market was at risk of a correction at some point, trade sources said. Leonard Kaplan, president of Prospector Asset Management, said a profit-taking sell-off could ensue at any time, but he felt the market was unlikely to correct "really deeply." "These investment funds just keep putting in more and more money.
These metals prices are insane, but insane can last a very long time," Kaplan said. Gold has climbed 38 percent in the year-to-date and 57 percent since the start of 2005, as investors diversify their accounts with more of the hard asset.
After gold trading closed, the Federal Open Market Committee raised the key federal funds rate by 25 basis points for the 16th straight time, taking the key rate to 5 percent. Gold quickly fell about $2 in after-hours trading, while the dollar spiked up as the Fed.'s statement was seen as less dovish as it might have been.
The dollar sank to one-year lows against European currencies but regained some ground as investors bet there will be a pause soon in dollar-boosting rate increases. Jeffrey Christian, managing director of research firm CPM Group, said dollar softness has bolstered gold because investors are more and more seeking a greenback alternative.
"You're finding a lot of uncertainty and volatility in the currency markets and that's good for the precious metals," he said in a phone interview. "You're seeing a lot of buying on the dips as opposed to profit taking," he said, adding that upside targets would now be at $50 increments.
Gold bullion hit a record high at $850 in January 1980. Spot gold climbed as high as $704.50 and later was quoted at $701.00/702.00 an ounce versus on Tuesday's New York close at $699.90/700.90.
Bullion dealers set the London afternoon fix at $699.90.
Worries over Iran and oil prices have fuelled safe-haven buying in gold too, and talk that China should boost the gold in its reserves to up to 5 percent of the foreign exchange reserves, from the current 1.3 percent, also was supportive, analysts said.
Iran is under pressure to rein in a nuclear program it says is for peaceful purposes but some countries fear is really aimed at developing weapons. US benchmark crude rose 2 percent to $72 a barrel in late New York trade.
Comex July silver slipped 1.3 percent, or 18.5 cents, to $14.28 an ounce, in a range of a three-week high of $14.58 and a low of $14.00. Futures shot to a 23-year peak at $14.84 April 20. Spot silver fell to $14.20/14.30, down from its last close at $14.44/54.
The London fix was at $14.34. On the board at Nymex, July platinum futures rose $20.40 to settle at $1,259.70 an ounce, just shy of a new record at $1,268.50. Spot platinum was at $1,253/1,258. June palladium dipped $4.70 to $390.20 an ounce. Futures hit a four-year high of $399.10. Spot palladium last traded at $387/392.
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