Spot gold breaks through $1,000

Reuters | Tue, 08 Sep 2009 08:37
[miningmx.com] -- SPOT gold and U.S. futures topped $1,000 an ounce for the first time in six months on Tuesday as the dollar's weakness and concerns about the sustainability of the global economic recovery underpinned sentiment.

Some market players were cautious about prices sustaining such highs, however, saying the rally had been driven by speculators and gold was an expensive buy in historical terms.

Futures have topped $1,000 nine times -- three times this year and six last year, including a record $1,033.90. Spot gold has risen above $1,000 just five times -- on Tuesday, in February and three times in March 2008, when it hit a record $1,030.80.

"Gold's rising price is due to uncertainty all the way from personal investors right through to institutions," said Sandra Close, an analyst for gold research group Surbiton Associates.

"There are questions out there over the health of economies, where interest rates are going. All that encourages gold hoarding. There's potential to see the price go even higher."

Spot gold rose as high as $1,002.55, its highest since February, when it briefly topped $1,000. New York's notional close was $993.85.

U.S. gold futures for December delivery extended gains to $1,004.80. Futures settled at $996.70 on Friday. U.S. markets were closed on Monday for the Labor Day holiday.

ARE HIGH LEVELS SUSTAINABLE?

Despite gold hitting $1,000, it is far from an inflation-adjusted record, which analysts at GFMS have put as high as $2,079 per ounce.

Some analysts have said the higher gold price reflects uncertainty across markets about how central banks will untangle themselves from global fiscal stimulus aimed at reviving economic growth, as well as dollar weakness.

The Group of 20 finance ministers and central bankers said at the weekend they would not remove economic stimulus until the global recovery was well entrenched.

Others said buying momentum could wane to push prices back towards $950 before consolidating, given weak physical demand and a tendency by big Asian consumers to sell when prices rise.

"I don't know if it will stay there for a particularly long (period). My view is that by the end of the year the gold price will be lower, probably down to around $950 an ounce," said David Moore, a commodities strategist at Commonwealth Bank of Australia.

A confluence of dollar weakness -- making the metal more attractive to non-U.S. investors -- and doubt about thesustainability of global economic recovery have prompted a spate of investors to seek refuge in gold.

The dollar held around 93 yen, although it was slightly lower on a basket of currencies in early trade. The dollar index is resting on trendline support at 78.00 and a sustained break lower would be quite bearish technically.

Along with currencies, analysts were watching stock markets to gauge gold's direction. A sell-off in equities on concerns about the economy could boost gold's safe-haven appeal.

"The gold market has legged up into a new range, but we need to see it sustain at $1,000 for a few days to write a new long-term story," said Mark Pervan, a senior commodities analyst at ANZ Bank.

"Gold bulls are easily spooked around these numbers and need to see them sustained to bolster confidence. Gold is rallying on fears of an equity retreat. The risk is that stocks will fall and people are hedging that by buying gold," he said.