Spot gold prices hit an all-time peak in Europe on Thursday as a dollar slump and inflation fears prompted investors to look for safe-haven assets. Spot gold rose as high as $999.90 an ounce before easing slightly to trade at $992.80/993.70 at 1615 GMT, compared with $981.90/982.70 late in New York on Wednesday.
This sparked buying of US gold futures which later exceeded the psychological barrier of $1,000. Analysts said spot prices could soon reach that level too. "I think there is more upside for gold and generally the precious metal complex because the Fed is going to be delivering a very negative real interest rate environment and that is great for gold," said Michael Lewis, global head of commodities research at Deutsche Bank.
The dollar fell below the key 100 yen mark for the first time in over a decade, and to fresh record lows versus the euro, on deepening worries over the US economy entering a recession.
"Gold is interesting because it also suggests that there are inflationary pressures out there in the world economy," said Chris Iggo, strategist at AXA Investments.
"Arguably, you're getting into bubble conditions for some of the commodities ... I can't see it ending any time soon, that's the problem. As long as the Fed's continuing to ease and the dollar's weak it's going to push up commodity prices further." A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
"The likelihood is that if the dollar continues on its downward trajectory that would put further upward pressure on dollar-based commodities," Philip Shaw, chief economist at Investec. Gold has jumped about 20 percent this year on top of a 32 percent rise in 2007, mainly on inflation worries following firm oil prices and chances of more rate cuts in the United States, which elevates gold's appeal as an alternative investment.
But some analysts advised caution. "At the moment, the environment looks inflationary, but we think the recession in the US could be deeper and longer than thought and spread to other parts of the world," said Nadja Reznikova, metals analyst at Wermuth Asset Management.
"We think that the environment will (later) turn more deflationary and this will not be good for gold. The dollar is now undervalued according to purchasing power parity and we don't see gold going further."
In industry news, No 2 gold producer Newmont Mining Corp said global gold mine output would decline over the next decade or so because of production constraints and past underinvestment in finding new resources.
Official data showed South African gold output fell 16.5 percent in volume terms in January year-on-year. In other metals, platinum rose to a high of $2,117 an ounce before easing to $2,098/2,098.00, up against $2,060/2,070 in New York on Wednesday. Silver rose to $20.50/20.55 from $20.04/20.09 an ounce, while palladium rose to $508/513 from $496/501.
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