May 12, 2010 / 3:13 PM / 10 years ago

Snap analysis: Gold rushes to record

LONDON (Reuters) - Fear surrounding the debt problems of some euro zone countries has galvanized investors to rush for gold in hoards, propelling prices to historic levels in dollars, euros, Swiss francs and sterling.

With benchmark spot gold having printed a record of $1,244.45 an ounce, attention is turning toward $1,400 as the next upside target. Analysts see prices adopting a pattern seen in the last few years of the market’s overall multi-year uptrend. A correction could pull prices down toward $1,226.10, before a period of consolidation in preparation for a fresh leg higher.

* The major driving force behind the current bullion rally — investors looking for refuge from the uncertainty created by the debt crisis in some euro zone countries and huge budget deficits in Britain, the United States and Japan — is not likely to abate soon. Uncertainty in the euro zone continues despite a $1 trillion package agreed over the weekend.

“People will keep buying as long as the news out of the euro zone points to printing money and higher inflation,” said Matthew Turner, analyst at VM Group in London.

* The scale of investor buying can be seen in the holdings of the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, which said its holdings stood at a record high of 1,192.150 tonnes as of May 11.

* Non-dollar gold prices have been instrumental in leading the charge higher. Euro-denominated gold has hit successive highs in recent weeks — most recently at 982.51 euros per ounce. Technical analysts are pointing to the 1,000 euro mark as a near-certainty given a high need for security.

* The euro zone economy made a weak start to 2010 as paltry growth in powerhouses Germany and France weighed, while debt reduction efforts in the region’s weaker states look set to puncture hopes of faster expansion in coming quarters.

* Sterling-priced gold has taken on fresh impetus, given the fallout from the UK election. Britain’s first coalition government since 1945 unveiled its ministerial team earlier and sketched out its main policy goals with a core task being to cut the country’s record budget deficit. Critics have said, however, that ideological differences could lead to uncertainty.

* The International Monetary Fund has been able to sell successfully into the latest leg higher — it disposed of 5.6 tonnes of the metal in February and a much bigger 18.5 tonnes of gold in March under the second phase of its gold sales programme. [nN04133498]

* While most analysts and fund managers have been bullish on the longer term outlook for gold, they do point to a pullback from a near vertical rise seen recently.

* Overwhelming retail demand has come from Europe. Austria’s mint said it sold 243,500 ounces of gold in coins and bars in the last two weeks, more than the whole of Q1.

“We think that the signs of gold buying by retail investors in Europe are more likely to mark the latter stages of the current move rather than the early stages of a bigger shift,” said Nic Brown, analyst at Natixis bank.

“Unless the situation in Europe gets more out of control or the fiscal crisis moves dramatically to another currency bloc such as sterling, yen or the dollar, we think we are probably close to the highs.”

* The weekly spot gold/silver ratio broke a trend line between the top at 86.78 and a high at 72.94, but fell to the 62.71 level after touching a high at 70.52 and may breach a second trend line connecting 86.78 and 70.52.

Reporting by Veronica Brown and Jan Harvey; Editing by Sue Thomas

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