NEW YORK/LONDON Spot gold prices surged to a 28-year high in European trade on Thursday as the dollar sank to an all-time low against the euro and new highs in crude oil bolstered inflation concerns.
Gold rose more than 2 percent to $738.30 an ounce, its highest since January 1980, when it hit a record high of $850. By 3:09 p.m. EDT, bullion was quoted at $734.50/735.30, compared with $721.10/721.90 in New York late on Wednesday.
Most-active December gold on the COMEX division of the New York Mercantile Exchange settled up $10.40 or 1.4 percent at $739.90 an ounce, dealing between $728.90 and $746.50 which marked the loftiest level since 1980.
"The market was in two minds yesterday, jumping between $722 and $726, but the euro's push through $1.40 against the dollar gave the market fresh impetus to break up again," said Tom Kendall, metals strategist at Mitsubishi Corporation in London.
Bill O'Neill, a partner in commodity consultant LOGIC Advisors in Upper Saddle River, New Jersey, said that the Fed's latest rate cut reignited investor fears about inflation and extended support to gold.
U.S. crude broke above the record $84 a barrel in afternoon trading. Oil prices have been rising sharply this week on U.S. supply concerns and storm worries.
Gold is usually seen as a hedge against inflation.
"Technically speaking, we are moving through to uncharted waters if we breach $730 cleanly. And that would be very positive for gold because it does open up the upside," said David Holmes, director of metals sales at Dresdner Kleinwort.
"The scenario is quite bullish. There is still an underlying credit concern that makes gold a sensible investment," he said.
A global credit crunch stemming from the U.S. high-risk mortgage sector has left investors looking for safe parking places for their cash, magnifying bullion's safe-haven status.
"Gold's fundamentals are very strong. The rate cut by the Federal Reserve has brought more gold buyers back into the market on expectations of a weaker dollar," said Michael Widmer, director of research at Calyon Corporate and Investment Bank.
Growth in bullion exchange-traded funds (ETFs) continued as investors diversified their portfolios. Gold used to back StreetTRACKS Gold Shares (GLD.N) hit a record high of 577.10 tonnes on Wednesday.
London-based ETF Securities said investment in its gold ETF (PHAU.L) had jumped 240 percent in the past seven weeks, with total assets under management exceeding $300 million. The product now holds nearly 350,000 ounces of gold, or around 11 tonnes.
"In light of the prospects for further Fed (rate) cuts and potential for further U.S. dollar weakness, the recent increases into the gold ETFs could continue," said John Reade, head of metals strategy at UBS Investment Bank.
In investment news, Lyxor Gold Bullion Securities said on Thursday it has introduced its bullion-backed exchange trade fund (ETF) in Belgium and the Netherlands.
Other metals also jumped, with platinum rising to an eight-week high of $1,323.40/1,330.40 an ounce from its previous finish of $1,301.70/1,308.70.
Silver rose as high as $13.48, which matched its highest level in nearly two months, and was last quoted at $13.36/13.41, versus $12.95/13.00 late Wednesday in the U.S. market. Palladium rose to $336.40/340.40 from $330.25/334.25 an ounce.
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