Gold flies higher as dollar plunges to record lows

By Clara Denina - Correspondent, clara@thebulliondesk.com (+44 (0)20 7929 6339)

London, 15 July 2008 - Gold accelerated higher on Tuesday European trade, in an immediate response to record-low levels in the dollar as investors continued to show concerns over the US financial system, triggering a fresh wave of safe-haven buying, while rising oil prices also helped sentiment.

Spot gold rose $11.90 to $982.70 an ounce at one stage, its best since March 19, extending steady gains of over five percent seen since the start of the month. It was last quoted at $981.80/981.30 an ounce, still up $9.50.

The next target is the $1,000 an ounce mark, also reached in March, which can be challenged once the metal breaches resistance at $985 and $997. Its all-time high was reached on March 17, at $1,032.60 an ounce.

"Gold would not only profit from a weaker US dollar but also from its safe haven status," broker Dresdner Kleinwort said.

"Crude oil might also remain well supported... thus, gold might continue its upward move," it added.

The US dollar fell to a fresh record low of $1.6037 against the euro, amid worries about the stability of the financial system, as market participants sought to digest the implications of the latest government proposals to address stresses in the financial system, while equity market strain is seen supporting long-term fund participation in the commodity complex.

Dollar losses came despite the US government's announcement on Sunday of an emergency plan to support two struggling top mortgage lenders Fannie Mae and Freddie Mac.

"As a result of these events, investor risk sentiment increased, and gold and silver prices surged on heavy safe-haven buying, we believe," James Steel at HSBC said.

Later in the day, the markets will focus on Fed Chairman Ben Bernanke's testimony before Congress to see how the latest financial system strains affect his views on monetary policy and the economy. However, with financial markets still unnerved and the housing market struggling, there is little the Fed can do to help the US currency.

"Beyond some temporary support of the US dollar by Mr. Bernanke, the HSBC currency team is not expecting the chairman’s testimony to give the US dollar a sustained boost. Given this, it also is unlikely to significantly weaken gold, we believe," Steel said.

Gold is traditionally seen as a 'valeur refuge' in times of financial turmoil because of its perceived propensity to either hold its value or to rise in price when other investment assets decline. Consequently, investors tend to increase their purchases of gold against the devaluation of currencies like the dollar.

Meanwhile, oil, another key driver of gold sentiment, rose over $1 to around $146 a barrel, trading within a whisker of its all-time highs of $147.27 a barrel hit on Friday, as Brazilian oil workers went on a five-day strike that further tightened global energy supply.

High energy prices heighten inflation concerns and favour gold investment, as the metal is seen as a good hedge against oil-led inflation.

The general improved sentiment towards the commodity sector also prompted gains in silver as well. The metal rose 28 cents, or 1.5 percent, to $19.36 an ounce at one point, its best since March 19, before settling at $19.28/19.30 an ounce, still up 20 cents

Elsewhere, the PGMs remained more subdued, still pressured by reduced consumption from the autocatalysts sector in the Western World, where weak financial conditions result in lower demand for cars.

Platinum was still down $8 to $2,012/2,018 an ounce, while palladium remained unchanged at $450/454 an ounce.

The Portway Centre, Old Sarum Park, Salisbury, Wiltshire, SP4 6EB t: +44 (0)1722 424

These articles are provided for informational purposes only and were obtained from publicity available sources on the Internet. These articles do not constitute financial advise or trading recommendations by Global Asset Management ("Global"). Global neither warrants the accuracy or completeness of the information contained in these articles, undertakes to update them, nor is it responsible for any omission or error contained in these articles. Viewers are encouraged to conduct, and should only rely on, their own independent research.
The purchase or sale of precious metals involves substantial risk and volatility. If you are contemplating purchasing and/or selling precious metals, you should consult with an independent financial advisor to learn about the inherent risks. Global does not render, and nothing in this website should be construed as, financial advise, a trading recommendations or a solicitation for the purchase or sale of precious metals.

Daily Chart : Gold

Daily Chart : Silver

Daily Chart : Platinum

Daily Chart : Palladium


Copyright © 1996-2010 Global Asset Management. All rights reserved.

2425 Hollywood Blvd. Suite 100. Hollywood, Florida 33020 :: info@globalam.net

phone: 954.921.1021 :: fax: 954.921.1536 :: toll free: 1.888.421.1021