London: Gold prices rallied to fresh record high above $1,225 an ounce in Europe on Thursday as the dollar slid towards a 16-month low against the euro, fuelling buying of the metal as an alternative asset.
Weakness in the US currency is adding fuel to an impressive cross-currency rally in gold prices, sparked by talk of fresh central bank buying and supported by fears over the inflation outlook and a broad-based rise in commodity prices.
Spot gold hit a high of $1,226.10 an ounce and was at $1,218.85 at 1026 GMT, against $1,215.90 late on Wednesday.
Saxo Bank senior manager Ole Hansen said a raft of factors, including central bank buying and fears over the currency markets, were supporting gold. “It has obviously been helped by the recovery in the euro and weakness in the dollar,” he said.
The metal is ignoring its usual technical indicators as it moves further above previous record levels, he added.
“We are into new territory every time we make new highs,” said Hansen. “It is easy to break up a percent, because there are no levels to look for as resistance.”
“The way gold is going, despite showing overbought, just indicates that it is something one shouldn’t really get in the way of. All the forces are at play for gold.”
The main price driver remains the euro-dollar exchange rate. Weakness in the US unit boosts gold’s appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
The euro climbed on speculation the European Central Bank (ECB) may take the first steps in winding down quantitative easing at a policy meeting later in the day, analysts said.
Central banks eyed
The ECB is widely expected to hold rates at a record low 1.0% when it announces its policy decision at 1245 GMT.
Analysts will be watching a news conference by ECB president Jean-Claude Trichet following the decision to see whether he will further outline the central bank’s exit strategy from fiscal stimulus measures.
Meanwhile, the dollar slipped after Bank of America said it will repay bailout funds, stoking risk appetite and boosting stock markets. World stocks hit a new 14-month high, while European shares rose in early trade.
Gold hit record high in euro and sterling terms as well as in the dollar. Euro-priced gold reached a peak of €812.43 an ounce, while gold denominated in sterling hit a high of £735.20 an ounce.
Gold analysts say they are watching for signs of further central bank gold buying, after India’s 200-tonne purchase announced in early November and subsequent small acquisitions by Sri Lanka, Mauritius and Russia sparked a sharp prices rise.
A Chinese industry executive said on Thursday there is more scope for China to increase purchasing gold, but not in the open market and only over a longer-term period.
Among other precious metals, silver was at $19.20 an ounce against $19.20. The world’s main silver exchange-traded fund, the iShares Silver Trust, said its silver holdings fell 3.49 tonnes from record levels on Wednesday.
Spot platinum was at $1,496 an ounce against $1,500.50, while palladium was at $387 against $387.50.
The Shanghai Gold Exchange is to begin trading palladium, the exchange chairman told a conference on Thursday. “The government approval process is nearing an end,” he said.