Gold shrugged off a firmer dollar and rebounded on Friday to track higher crude oil, which spurred some safe-haven buying in parts of Asia. Spot gold rose to $662.40/662.90 an ounce from $661.20/661.70 an ounce late in New York on Thursday, when it dropped nearly $5 after it failed to break resistance of $670 despite rising crude oil.
But dealers said gold's fundamentals remained in place as tensions in the Middle East and high crude oil raise the metal's appeal as a hedge against inflation. "I hate to speculate on the price range but I think very easily we can see $700 gold," Stephen Or, chief executive officer of Australia-listed Oceans Gold Ltd told Reuters on the sidelines of a conference on Thursday.
"We think that all the fundamentals that have supported the price over the last couple of years are still in place. "Because of the inflationary environment in the world, cost has gone up.
So that's kind of provided a new and higher floor for the gold price that didn't exist before," he said. Crude oil futures moved towards $67 a barrel on Friday after ending at a six-month high the previous day on concerns about a possible loss of Iran's oil exports in the wake of a stand-off over British sailors and marines in Iranian custody.
Britain sought international help to isolate Iran following the capture of 15 military personnel in the Gulf, and Iran responded by putting off the release of a woman captive. Iran is the world's fourth-biggest oil exporter. Gold spiked to its highest level in 26 years at $730 in mid-May as investors diversified their portfolios on Middle East tensions, record-high oil prices that raised fears of inflation as well as uncertainties in the US dollar's outlook.
It hit a record high of $850 an ounce in 1980. "The trouble in the mortgage industry in the US is going to constrain the Fed.'s ability. In fact, they are going to be under pressure to ease monetary policy," said Ore of Ocean Gold. "If they ease monetary policy, the US dollar is probably going to drop and that's good for the gold price.
We expect the gold price to actually increase as a result of that," he said. Investors await US personal income data on Friday, which could set near-term directions for the dollar and gold. The dollar extended gains to 118.15 yen, while the euro hardly changed from late New York levels at $1.3320 after on Thursday's gross domestic product report showed the US economy may be more resilient than initially thought.
A weaker yen prompted some buying in Japanese gold futures. Benchmark gold futures for February delivery on the Tokyo Commodity Exchange added 6 yen per gram to 2,538 yen ($21.52). "We can say $655 is the support, and of course resistance lies at $665," said Ronald Lunge, director of Lee Cheong Gold Dealers in Hong Kong, adding that Mideast tension had triggered some buying.
"It needs to break through $668 before the market has a chance to break $670," he said. Silver rose to $13.29/13.34 an ounce from $13.26/13.29 late in New York. Philip Kalpwijk, executive chairman of GFMS Ltd, expected data to show total silver jewellery demand in 2006 to drop by "significantly over 5 percent" year-on-year, largely because of a 46-percent jump in prices for the year. Platinum rose to $1,238/1,243 an ounce from late New York levels of $1,235/1,240. Palladium rose to $352/357 from $350/354 an ounce.