GOLD RISES ABOVE US$ 1,000 AN OUNCE / THE FINANCIAL TIMES

Gold rises above $1,000 an ounce

By Javier Blas, Commodities Correspondent

Published: September 8 2009 08:13

Gold prices hit a year high above $1,000 a troy ounce on Tuesday, as renewed dollar weakness attracted more investors to the safety of bullion.

Traders said that worries about the re-emergence of inflation as central banks continue to pump cheap money into the global economy also contributed to the price jump. In addition, bullish chart signals triggered speculative flows into the precious metal.


But in absence of strong jewellery demand, the traditional backbone of the gold market, analysts said the push above the $1,000 an ounce mark could be short lived.

In morning trading in London, spot bullion traded as high as $1,007.45 an ounce, up 1 per cent on the previous day. It is the third time that gold has moved above $1,000 since March 2008, when it hit a record high of $1,035 an ounce. In early trading in New York, gold futures for delivery in December rose to $1,009 an ounce.

The dollar slumped to its lowest in almost a year against a basket of major currencies. Against the euro, the dollar hit a month-low of $1.444.

Gold has attracted investors since the collapse of Lehman Brothers last year as an insurance against the financial crisis, but also amid concern that the extraordinary steps taken by central banks to prop up the global economy could lead to higher inflation in 2010.

“It’s likely to be third time lucky for gold: twice the price has tested the $1000 mark, in March 2008 and in February this year,” said Bill O’Neill, portfolio strategist at Merrill Lynch Global Wealth Management in London. “If there is even a hint of worry that central banks are being over-generous in the extent and duration of their fiscal stimuli, gold will become everyone’s touchstone.”

Hedge funds that made money last year by betting against the survival of Wall Street banks, including David Einhorn’s Greenlight Capital and Paulson & Co, have bought gold this year as a way of betting against the ability of central banks to steer the world out of crisis without triggering inflation. Their strategies have drawn in more investors.

At the same time, retail investors have bought record amounts of bullion coins. The US Mint sold from January to August about 838,500 ounces of the popular American Eagle gold coin, up from 446,000 ounces in the same period of 2008. But retail buying has cooled recently as prices moved higher, bankers said.

Gold bulls were also given a psychological boost last month when European central banks announced a lower ceiling than expected for their bullion sales over the next five years, reducing their annual quota by 20 per cent to 400 tonnes.

Nevertheless, traders and analysts are doubtful about the prospects of a substantial rally in the gold price beyond $1,000 an ounce because of lacklustre jewellery and industrial demand.

Jewellery demand for gold sank to a 5½-year low in the second quarter of 2009 due to global economic recession. High local prices in India, the world’s largest jewellery market, also weighed on demand, which fell 31 per cent to 88 tonnes in the second quarter, while demand in Turkey, another key market for gold jewellery, dropped 54 per cent to 19.2 tonnes.

John Reade, precious metal strategist at UBS in London, said he was unconvinced that all the ingredients were in place for a sustained surge higher in gold. “Over the past few years, most good buying opportunities in gold have been marked by strong jewellery demand that had followed a period of speculative long liquidation,” he said.

Mr Reade reiterated his forecast for gold to fall back to $950 an ounce in one month.

Copyright The Financial Times Limited 2009