Wednesday, December 07, 2005

Gold rushes to new 24-year peak

LONDON, England (Reuters) -- Gold hit a fresh 24-year high on Wednesday, supported by inflation concerns and robust investment demand in commodities, but dealers warned the market remained vulnerable to fund liquidation.

Gold opened in London trading at $512.20 an ounce, up $5.20. It closed in Hong Kong trading at $513.25.

In April 1981, the London gold fix by bullion dealers reached $534.25, according to data from The London Bullion Market Association. In January 1980, it hit a record level of $850.

"The market is still looking very bullish," said a bullion dealer with a major investment bank in Singapore. "Still unresolved buying out of Japan is pushing it higher."

The Japanese seemed to believe that markets like equities and bonds were peaking, and gold was a safer investment to maintain steady rather than huge gains, he said.

More market reports showed gold had a further upside, with one saying bullion could hit $600 an ounce before Christmas or year-end, he said.

"I don't believe that for a minute, but I have just read about that development on the Internet. There are some people thinking there is a considerable upside yet to come in this market."

One factor supporting the gold market, he said, was that people have been diversifying their investment from traditional financial securities, such as shares and bonds, into gold and other commodities.

Recent decisions by some central banks to increase the amount of gold in their reserves and speculation it would not be long before Asian central banks with very low gold reserves followed suit also helped.

Correction fears

In November, Russia, Argentina and South Africa decided to increase the amount of gold in their reserves, reversing a six-year trend of central bank sales, mainly from Europe.

Craig James, chief economist at Commonwealth Securities in Sydney, said: "The anecdotal evidence is that physical demand has softened somewhat because of high prices, but the speculative interest is still there.

"Of course it's not just gold, it's a whole range of base and precious metals and commodities in general, including sugar," he added.

But the gold market remained susceptible to a sharp correction, particularly given the speculative factors behind recent steep gains in gold prices, he said.

Gold, used in jewellery and as an investment, spent much of the period from 1997 to 2001 below $300, before embarking on a bull run that has seen its price nearly double.

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