Gold steadied on Thursday, but analysts expect the precious metal to extend gains to new records over coming days as waves of investor money come flooding into the market looking for safety. In euro and sterling terms, bullion hit record highs as investors moved to the yellow metal as a haven from sovereign risk in the eurozone.
Spot gold was bid at $1,238.35 a troy ounce at 1511 GMT from $1,236.35 an ounce late in New York on Wednesday, when it hit a record $1,248.15 on fears that a $1 trillion European rescue package will not solve the eurozone debt crisis. However, the European Central Bank's commitment to buy eurozone government bonds has dampened gold market sentiment as it cuts chances of sovereign default in the bloc.
But analysts say risk aversion still dominates market psychology and the fact that gold has moved up alongside the dollar only reinforces investor bias towards the precious metal. Gold priced in sterling rose to a record high of 840.95 pounds an ounce while euro-priced gold touched an all-time high of 988.92 euros per ounce as the dollar gained versus sterling and the euro.
"What is bullish for gold is the coincident dollar strength. Similar to that in late 2008 and early 2009 after Lehman's bankruptcy - a period of heightened risk aversion," said Dan Brebner, analyst at Deutsche Bank. "Over the next 6 months we could see a 25-30 percent increase in gold."
Strong investor interest in gold can be seen in the holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, which said its holdings stood at a record high of 1,209.499 tonnes as of May 12. US gold futures hit a record peak of $1,249.2 an ounce on Wednesday. They were last at $1,239 an ounce, down about $4 from the previous session.
Investors use gold as a hedge against financial and political turbulence and as a store of value during times of high inflation, which erodes wealth. Spot silver was at $19.77 an ounce from $19.48, platinum at $1,731.50 from $1,736.50 and palladium at $542 from $540.
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