Gold tested investor appetite above $800 an ounce on Wednesday, bringing recent 28-year highs back into view as oil topped $99 per barrel and the dollar hit record lows against the euro. With worries over the crisis in credit markets and slowing US growth increasing, analysts said gold's appeal as an alternative investment was back on investors' radar screens.
But trade was volatile, with liquidity thinned by several market participants attending a global precious metals conference in Mumbai and a shorter US trading week for the Thanksgiving holiday. Spot gold hit an intraday high of $807.10 an ounce before paring gains to stand at $798.60/799.20 by 1537 GMT compared with $793.90/794.70 quoted late in New York on Tuesday.
Analysts said that while the drivers for gold were looking positive, a further correction from this month's rapid run to 28-year highs at $845.40 could not be ruled out, with speculators still holding the strings. "The key question is are we going to see $750 before we see $850. Positioning is still extreme and everybody is long on the (COMEX) futures market - really we have to find new buying to see things move back up again," UBS metals analyst Robin Bhar said.
Major cues continued to come from oil and currency markets. Crude oil retreated from a record high, having closed in on the landmark $100 milestone earlier as the dollar sank to record lows versus the euro. Sentiment for the dollar was undermined after the Federal Reserve said US growth would likely slow in 2008, underscoring market expectations for more monetary easing.
The euro later retreated slightly to trade at $1.4831, after striking a record high of $1.4856. US light crude for January delivery on the New York Mercantile Exchange, or NYMEX, jumped by more than $1.00 to a record $99.29 a barrel before tracking back to $97.97, down 5 cents on the day.
In other bullion markets, the benchmark October 2008 gold futures on the Tokyo Commodity Exchange closed at 2,836 yen, a gain of 38 yen or 1.4 percent. The most-active December gold contract on the COMEX division of the NYMEX was up $7.40 an ounce at $798.80.
Commerzbank commodities analyst Eugen Weinberg said the climate in bullion markets was ripe for a fresh assault on the recent highs. "The two main determinants have been the euro-dollar exchange rate and the new oil high," he said in a note to clients.
"Persistent problems in the banking sector and fears of accelerating inflation are an almost ideal climate for gold investments, and we see it setting off again towards the $850 hurdle in the next few days." In other precious metals, spot platinum rose to $1,465/1,470 an ounce from $1,463/1,467, having hit an intraday high of $1,473 - near its record peak of $1,484 hit earlier this month, as worries about supply persisted.
Dealers cited last week's cut in refined platinum output for 2007 from top producer Anglo Platinum. A report in mid-November by Johnson Matthey, the world's top platinum refiner and fabricator, said the world platinum market would end 2007 in a sizeable deficit. Silver fell to $14.46/14.50 an ounce from $14.61/14.66 late in New York on Tuesday, while palladium was flat at $358/361 an ounce.
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