New York: Gold futures briefly rose above $900 (Rs35,370) an ounce—an all-time high—before pulling back on Friday as growing worries of a US recession prompted uneasy investors to keep buying the precious metal.
Need more: A cheap dollar can make commodities more attractive as an alternative investment, and can also raise demand from foreign buyers.
An ounce of gold for February delivery on the New York Mercantile Exchange jumped $6.50 to $900.10 in morning trading, an all-time high and a psychologically important milestone.
The precious metal later fell on profit-taking but still ended $4.10 higher to settle at $897.70 an ounce, a new closing record.
Gold also hit an all-time high of $897.30 on Thursday.
“It’s a reflection of market sentiment: Gold is a hedge against uncertainty and right now it’s the best bet,” said Carlos Sanchez, a precious metals analyst at CPM Group in New York. “None of the other investment options look that great and gold does.”
Still, when adjusted for inflation, gold remains well below its all-time high. An ounce of gold at $875 in 1980 would be worth $2,115 to $2,200 today.
Gold has had a meteoric rise the past year—rising nearly 32% in 2007—boosted by a falling dollar, rising prices for oil and other commodities and increased West Asia instability. Those trends have lifted the metal’s appeal as a haven; gold is seen as a safe investment in times of political and economic uncertainty around the world.
Also driving gold higher was US Federal Reserve chairman Ben Bernanke’s pledge on Thursday to cut interest rates to boost that country’s economy, which some fear may be sliding toward recession amid turmoil in the housing and credit markets.
Lower interest rates tend to depress a country’s currency and drive investors to shift funds to hard assets, like gold. A cheap dollar can make commodities more attractive as an alternative investment, and can also raise demand from foreign buyers as their currencies gain strength.
“Concerns of a recession will keep pushing up gold prices,” Sanchez said.
Hedge and pension funds, along with other long-term investors, also flocked to gold as the mortgage and credit crisis in the US intensified.
“The funds are really heavily at play... The momentum with gold is almost like mania. We keep wondering how high it will go,” said Jon Nadler, an analyst with Kitco Bullion Dealers in Montreal.
Investors looking to get in on the gold rush can expect continued volatility for the rest of the year, said Nadler, whose firm forecasts a trading range of $750 to $950 an ounce.
The steep rise in precious metals will also mean consumers in the US—the biggest buyer of gold after India—can expect to pay higher prices for gold earrings, bracelets and other jewellery.
“People are going to feel that sticker shock when they go down Fifth Avenue,” Nadler said. “You’ll start seeing the increase reflected as early as Valentine’s Day.”