Gold takes a ride on oil's coat tails
October 26, 2007
By Sherilee Bridge
Johannesburg - Taking its cue from ongoing strength in the oil price, gold continued to flirt with fresh 28-year highs on Friday.
The precious metal's price was also supported by the weakening dollar, which again skirted record lows against the euro on growing US inflation concerns and expectations of a rate cut by the US Federal Reserve next week.
Gold moved easily through resistance at last week's 28-year high of $771.50 per ounce, triggering buy stops and setting another high of $778.65 when the London bullion market opened and posting gains of 1.5% on the New York close.
At 10.13am, gold was $7.73 higher at $776.55 an ounce - indicating that the yellow metal was seeking the $770 a troy ounce level.
Gold usually benefits from high oil prices, which fan inflationary concerns, said Investec Analyst Darren Heathcote.
According to DJ News, oil set another record high of $91.84 a barrel, up $1.38 on the day. But by mid-morning it was trading $1.16 higher at $88.64.
Kitco Analyst Jon Nadler said inventory levels and the Turkish/Kurdish impasse continued to worry the oil market's participants.
Adding to global investor apprehensions were the new round of broad sanctions that the US slapped on Iran on Thursday, he said.
And gold's outlook remains firm, despite heavily overbought indicators such as record open interest and net speculative long positions.
Nadler said investors were again loading up on gold as an inflation and geopolitical hedge.
JP Morgan, which continues to favour precious metals over base metals, said it expected the precious metal to edge higher in 2008, with gold seen at $814 a troy ounce.
Another popular precious metal, platinum leapt $11.50 to trade at $1,457 largely on supply fears from another major South African producer.
Impala Platinum, the world's second-biggest platinum miner, said on Thursday that it was closing two shafts at its Marula mine after a fatal accident.
One of the shafts produces half of the total monthly output of 6,000 ounces, according to analysts.
The National Union of Mineworkers has also said it planned a one-day strike over declining levels of safety at South Africa's mines. This would take place later this month or early November.
Strike action and industrial accidents have already cut production of the precious metal in South Africa and these supply fears were behind last week's push of prices to record highs.
"Platinum production is evenly matched with demand and we believe even mild or short-lived production stoppages can have a noticeable impact on prices," HSBC analyst James Steel was quoted by Forbes as saying.
"Despite the potential for weakness in the other precious metals, the platinum fundamentals, in our view, remain price-friendly," he added.
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