Gold Futures Rise Above $500 on Dollar, Inflation Concern

Bloomberg
Nov. 28, 2005

Nov. 29 (Bloomberg) -- Gold futures in New York rose above $500 an ounce for first time in almost 18 years after the dollar fell the most in more than seven weeks versus the euro, increasing bullion's appeal as an alternative investment.

The dollar fell more than 1 percent against the euro yesterday after an industry report showed U.S. home sales in October fell more than analysts expected. Gold has jumped 15 percent this year, outperforming the Dow Jones Industrial Average and the 10-year Treasury note.

``That was quite a decline for the dollar and that's driving gold prices to rally,'' said Ron Cameron, a metals analyst at Ord Minnett Ltd. in Sydney over the phone. ``It's all happening. From a technical point of view, gold could reach $525 in the next month or so.''

Gold for February delivery rose as much as 70 cents, or 0.1 percent, to $503.30 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange, the highest since December 1987. It traded at $502.80 at 9:37 a.m. Sydney time. The February contract is now the most active contract. The December contract closed yesterday at $498.30.

Gold for immediate delivery rose as much as 50 cents to $499.20 an ounce in Asian trading and traded at $498.80 9:37 a.m. Sydney time.

A futures contract is an obligation to sell or buy a commodity at a set price by a specific date. A weaker dollar increases the appeal of the bullion against U.S. assets.

Euro

Against the euro, the dollar fell 1.06 percent to $1.1850 yesterday, according to foreign-exchange dealing system EBS. It was the biggest drop since Oct. 6. It traded at $1.1845 against the euro at 9:26 a.m. Sydney time.

The dollar slid 0.7 percent to 118.84 yen from 119.63, the largest decline since Sept. 9. It traded at 118.91 against the yen at 9:26 a.m. Sydney time.

Investors also are buying gold to guard against accelerating energy prices, which is fueling inflation, traders said. Global oil demand usually peaks in the fourth quarter of the year as consumers in the U.S., Japan, and Germany, the world's three largest economies, buy fuel to heat their homes. Oil prices are up 34 percent this year.

``There's more buying for investment because still people are worried about the dollar's direction and worried about inflation,'' Ng Cheng Thye, head of the precious metals market desk at Standard Bank Asia, Singapore.

Some investors buy gold in times of inflation to preserve purchasing power. Gold surged to $873 an ounce in 1980 when consumer prices jumped 12.5 percent.

Investment demand for gold coins, bars and bullion-backed shares rose 56 percent in the third quarter from a year ago, the World Gold Council said. Members of the Organization of Petroleum Exporting Countries, including top producer Saudi Arabia, have seen oil income soar as prices jumped as much as 61 percent this year to a record $70.8 a barrel on Aug. 30.

``The real action is in the investment,'' said George Milling-Stanley, manager of market analysis at the World Gold Council in New York and a former gold trader.