The Bullion Desk

Precious metals rocket higher on fund buying amid bullish sentiment

January 9th, 2009

By Clara Denina

Gold turned in another record performance in Europe on Wednesday, rallying along with the rest of the complex to set fresh all-time highs above $890 an ounce, as index re-weightings added to fresh investment inflows amid lower interest rate expectations and oil-related inflation.

Meanwhile, platinum also hit a new all-time high above $1,560 an ounce on the back of buoyant investment demand.

Spot gold was up $3.90 to $886.20/886.70 per troy ounce, having touched a fresh record high in nominal terms at $891.45 in earlier trade. Resistance is now seen at $900, while a break through that level might see gold test $920.

The yellow metal has already climbed four percent since the start of the year. However, in real terms (adjusted for inflation), it would need to exceed $2,000 an ounce to match the price achieved 28 years ago at $850.

"Gold seems determined to break through the psychological $900 barrier. But the market is nervous, with nobody really wanting to pay the highest ever price for gold, but nobody is prepared to sell either," broker Standard Bank said.

"With oil prices edging higher again despite the US dollar trading fairly flat, bulls are in charge for now," it added.

A key driver of inflation has been the surge in oil prices to record highs above the $100/barrel level early in 2008. Gold, perceived as a hedge against oil-led inflation, has therefore tended to move in tandem with oil in recent months.

Crude oil, which staged a rebound yesterday, rose some $2 above $97 a barrel today ahead of today’s inventory data which is expected to show another drop in the US stockpiles last week.

A report from the US Department of Energy on Tuesday predicted oil supplies will be tight this year but ease in 2009 and the oil price will average $87 a barrel this year.

Meanwhile, the dollar was trying to stabilise versus the euro on Wednesday, but it is expected to fall further ahead of the next Federal Reserve's meeting on 30-31 January, when another interest rate cut is anticipated for the fourth time since the start of the credit crisis in August 2007. This should help gold by making it cheaper to purchase for investors holding other currencies.

Fed’s Chairman Ben Bernanke is scheduled to deliver a speech about the health of the US economy and financial markets on Thursday.

In the current environment of depreciating dollar, lower interest rates, mounting inflation and slowing economic growth, investors are seen reallocating some of their funds into the commodity sector and precious metals in particular, which are seen as a safer choice than equity or dollar-related securities.

Gold is viewed as one of the favourites in the realignment process of major index-funds, with around 123,000 ounces of metal and over 19 million ounces of silver anticipated to be bought as a result of the annual re-balancing of their commodity portfolios, started on Monday and to last until January 14.


Platinum joined in gold in this investment-driven rally, setting a new all-time high above $1,560 an ounce, with further gains expected in the short term.

Spot platinum rose $13 to a fresh peak of $1,561 an ounce, having risen from $1,539 at the start of the year. The white metal is set to repeat its 2007 performance, during which it gained some 34 percent.

The near-term outlook for platinum remains particularly vibrant, with analysts seeing the current positive trend extending to the $1,600 level on the back of supply constraints, increasing investment buying and robust demand from the autocatalyst sector.

"Despite the recent easing in platinum lease rates the market remains extremely tight, and given the surge in investment demand over the past nine-months that situation is likely to worsen and could easily push spot prices above $1,800 an ounce," James Moore at said.

Silver rose as high as $16.16 an ounce at one stage, just four cents away from its multi-decade high of $16.21, set on November 7. It then settled at $16.04/16.05 an ounce, still up 33 cents.

Meanwhile, palladium remained unchanged at $374/379 an ounce, having touched $378, its best level in two months, in the previous session.


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