Spot gold jumped on Friday and held within sight of the $1,000-an-ounce barrier broken on the futures market after the dollar hit a record low against the euro, boosting the metal's appeal as an alternative investment.
Gold has gained nearly 20 percent in 2008, driven by buying from investors and speculators on expectations of further interest rate cuts in the United States and record high oil prices, which raised its appeal as a hedge against inflation.
Spot gold rose to $996.00/996.90 an ounce from $991.00/991.80 late in New York. It had powered to another record high of $999.90 an ounce on Thursday. Platinum and palladium held below their recent highs, while silver tracked firm bullion.
"Providing oil prices maintain a dizzy height and the US continues to suffer, it looks extremely likely that gold will test the $1,000 level and likely break through it," said Darren Heathcote of Investec Australia in Sydney.
"But it may see some profit taking as we get there, which may hold its rise initially before possibly progressing on to $1,004 to $1,005 an ounce," said Heathcote, who expected gold to hit $1,000 later on Friday. Gold futures for April delivery on the COMEX division of the New York Mercantile Exchange added $3.6 an ounce to $997.4, having struck a record $1,001.50 on Thursday.
Gold hit $850 an ounce in January 1980 as high inflation linked to strong oil prices, plus the Soviet intervention in Afghanistan and the impact of the Iranian revolution, prompted investors to buy the metal. After adjusting for inflation, the 1980 high is equivalent to $2,119.30 an ounce at 2007 prices, according to precious metals consultancy GFMS Ltd.
In the physical sector, dealers saw sales of scrap as jewellers cashed in on gold's rise but declines in stock markets also encouraged funds to shift some of their money into gold. "There's, of course, some profit taking but I guess people are also cautious about what's going to happen after the price hits $1,000. Some people are talking about gold hitting $1,100 and $1,200 in the middle of this year," said a dealer in Hong Kong.
The dollar hit a record low against the euro and fell back towards a 12-year low versus the yen as rumours of more hedge fund failures stoked concern about damaged credit markets and drove Asian stocks lower. "If the dollar continues to weaken, then, rather like the price of oil, it'll be a long time before we see lower gold prices," said Angus Campbell, head of sales at Capital Spreads, in a note.
"Momentum is also being provided by many investors running to gold as a safe haven in the face of credit woes and high inflation." Oil fell as investors booked profits after crude powered to a record $111 a barrel on Thursday. Spot platinum fell to $2,080/2,090 an ounce from $2,098/2,108 an ounce. Palladium eased to $501/506 an ounce from $508/513 an ounce. Silver edged up to $20.61/20.66 an ounce from $20.42/20.47 an ounce.