Gold prices surged above $900 a troy ounce for the first time ever as investors yesterday sought refuge from a weakening US dollar amid alarm bells about further losses on Wall Street.
As the spot price hit $914 an ounce in London yesterday, traders were betting it would reach $1,000 within three months. The surge to a record high was also prompted by fears that lower interest rates and higher food and energy commodity prices would trigger a rise in inflation.
John Hill, an analyst at Citigroup in New York, said that gold prices were likely to test the $1,000-an-ounce level in 2008. Key gold traders such as UBS, Mitsui Precious Metals, Barclays Capital and The Bank of Nova Scotia expressed a similar view. "Prices could explode to multiples of these levels in the event of a full-blown US recession," he added.
David Holmes, head of precious metals at Dresdner Kleinwort in London, added that investors were already buying option contracts that would be profitable only if gold prices surged to levels above $1,000 an ounce - even as high as $1,500 an ounce.
However, he joined other analysts warning that gold prices could suffer a large correction later on in the year as jewellery demand, a key support, has vanished as prices have surged. Speculators could also trigger a price collapse if they rush out of gold.
Speculators on the New York gold market hold 10 bets on higher prices for each one held on lower prices, according to analysts. Investors in Tokyo and on the Shanghai gold futures market are also betting on higher prices.
Gold's strength boosted platinum to a record of $1,590 an ounce and silver to a 27-year high of $16.58 an ounce.
The US dollar fell to $1.4890 against the euro, its weakest level in seven weeks and less than a cent away from the all-time low of $1.4966 it hit against the single currency in November. However, sterling's fall also continued - it dropped to 76.08p against the euro.
Meanwhile, agriculture commodities jumped as the weaker dollar attracted overseas buyers and after signs that European Union efforts to boost agriculture production have failed so far in spite of the suspension of the limits to grain crops.
Silver chases to 27-year high and Commodities, Page 42 Global Overview, Page 44 www.ft.com/gold www.ft.com/foodprices
