European gold nears $700

Gold hit its highest in nine months on Monday as a weak dollar attracted money to commodities and tensions grew between Iran and the United Nations. Silver rose to its highest since May, platinum hit its best level in three months at $1,245 an ounce on the back of a rally in Tokyo futures, and palladium held near its highest since June last year.
Spot gold hit its peak for the day in Asia at $689 an ounce but subsequently failed a later attempt to match that level. Prices last traded at $686.00/686.75 by 1556 GMT, versus $682.00/682.70 late in New York on Friday.
Gold has risen some 14.5 percent since early January and is only some $40 away from last year's 26-year high of $730. Recent rallies in other commodities such as oil and base metals have enhanced gold's appeal, as the weaker dollar makes US dollar-denominated products more attractive for overseas investors. The dollar hit a two-month low versus the euro on Monday, while oil resumed its climb away from $61.
"We still believe gold has the $700/oz marker in its sights and it remains one of our top commodity picks for 2007/08," Nick Moore, commodity analyst with ABN-Amro said in a report. Iran dug in its heels over its nuclear programme on Monday ahead of a London meeting of Western powers to discuss tightening UN sanctions on Iran amid Western fears it aims to produce nuclear weapons.
"There's a lot of verbal rhetoric on Iran...it will certainly stop people going short in the market," one trader said. UBS Investment Bank upgraded short-term price estimates, forecasting gold at $700 in one month and $750 in three months, from a previous $650 and $700 respectively.
Traders said the market could see short-term retracements before another attack on $700. "The underlying sentiment is that they will try for it at some point," the trader said, adding that there was selling around $689/690. Also supportive were the results from a poll of 47 central banks published on Monday, with almost nine out of 10 banks seeing ample scope for further currency and asset diversification of foreign exchange reserves.
Twenty-two said rising gold prices made gold more attractive as a reserve asset, while 13 said less attractive. Analysts were wary of a large build up in speculative long positions in the New York gold futures market. "Positioning on the US futures markets is extreme and a deep and unforecastable correction in all four precious metals should be expected," UBS said in a daily report.
Societe Generale also noted a "growing sense of nervousness" in the market. "While there is currently considerable euphoria in the gold market, the rate of speculative acquisition in recent weeks must give some cause for concern," the bank said in a note. In other precious metals, silver rose to $14.63/14.68 an ounce, having set a peak earlier at $14.69 from $14.53/14.58 late in New York.
Strength in platinum petered out during European trade, with prices slipping to $1,235/1,240, versus $1,236/1,241 in New York. Palladium was at $354/358, versus $355/358 in New York. It hit $357 an ounce on Friday, its best level since June.