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Spot gold sets historic high above $1,000 mark
March 14, 2008 / 12:39 AM / 10 years ago

Spot gold sets historic high above $1,000 mark

LONDON (Reuters) - Gold raced to an historic peak above $1,000 on Friday as the dollar’s plunge to record lows on weak data and deepening financial market troubles in the United States boosted bullion’s safe-haven appeal.

Gold bars are displayed at the headquarters of Mitsubishi Materials Corporation in Tokyo, January 9, 2008. Gold raced to an historic peak above $1,000 on Friday as the dollar's plunge to record lows on weak data and deepening financial market troubles in the United States boosted bullion's safe-haven appeal. REUTERS/Toru Hanai

Bear Stearns BSC.N shares tumbled as much as 50 percent on news liquidity problems prompted the investment bank to secure financing from JPMorgan Chase and the Federal Reserve Bank of New York.

“This whole fear of the credit crisis being far from over seems to escalate on a daily basis,” Daniel Hynes, metals analyst at Merrill Lynch, said.

“That has been a key driver of gold over the last couple of months. So this announcement just adds fuel to that fire.”

Spot gold surged as high as $1,007.10 an ounce; it was at $996.90/997.70 by New York’s last quote at 2:15 p.m. EDT (1815 GMT), up from $991.00/991.80 late on Thursday.

Gold, seen as a safe haven asset, has gained more than 20 percent this year on top of a 32 percent gain in 2007.

U.S. gold futures set a record high of $1,009 an ounce. The most active contract for April delivery on the COMEX division of the New York Mercantile Exchange settled up $5.70 at $999.50 an ounce.

Gold rallied as the dollar tumbled to a record low against the euro after news of mounting problems at Bear Stearns, the No. 5 U.S. investment bank, stoked fears of a long recession.

Earlier, a report showing underlying U.S. inflation was unchanged in February boosted the case for more U.S. interest rate cuts. Since September, the Federal Reserve has cut rates from 5.25 percent to 3 percent.

A rate cut tends to weaken the dollar, making gold cheaper for holders of other currencies.

Here are two outstanding examples of the ripple effects around the world when the dollar stumbles. Oil is at a record high at $110 and gold has topped $1,000 an ounce for the first time, while the dollar has fallen below 100 yen for the first time in more than a decade. Most commodities are priced in dollars, so the weaker the greenback, the cheaper it is for holders of other currencies to buy gold and oil. Gold is also generally seen as a hedge against oil-led inflation. Gold has jumped 19 percent this year on top of a 32 percent rise in 2007. REUTERS/Graphics


“It made a breakout really on the news about Bear Sterns,” Dan Smith, analyst at Standard Chartered Bank, said referring to gold’s rise above $1,000 an ounce.

“Gold is in a long-run uptrend. It’s tending to ignore bad news and rally on the good news at the moment. We’re looking forward to the next Fed meeting to see how interest rates might get cut,” Smith said.

Gold hit $850 an ounce in January 1980 amid high inflation linked to strong oil prices, plus the Soviet intervention in Afghanistan and the impact of the Iranian revolution.

After adjusting for inflation, the 1980 high is equivalent to $2,119.30 an ounce at 2007 prices, according to precious metals consultancy GFMS Ltd.

Gold’s rally has been driven by “the weak dollar, inflationary concerns, and the biggest factor is people’s fears over the financial system,” said Robin Bhar, metals analyst at UBS Investment Bank.

“There is more scope for major companies going bankrupt, for the credit crisis continuing. The Fed is cutting rates rapidly but that doesn’t seem to be reviving the economy. So people are fleeing into hard assets, away from paper assets like money.”

Gold also was firm in other currencies. The metal was at 639.83 euros an ounce, just below this month’s record high of 649.85 euros. It was at 492.32 sterling, versus a record high 497.55 sterling on March 3.

“Trading would continue to be dominated by renewed fears about the perils of a collapse in the value of the dollar and the ever-dimmer prospects for growth in the world’s largest economy,” said Pradeep Unni, analyst at Vision Commodities.

Platinum fell to $2,070/2,080 from $2,098/2,108 an ounce late Thursday in New York, while palladium rose $1 to $509/514. Silver XAG= was up at $20.64/20.69 an ounce from its previous finish of $20.42/20.47 in New York.

Additional reporting by Frank Tang in New York, Anna Stablum in London

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