Friday, January 11, 2008

UPDATE: Spot Gold At New Record High On US Rate Cut Talk

UPDATE: Spot Gold At New Record High On US Rate Cut Talk

(Adds analyst, trader comments.)

LONDON (Dow Jones)--Spot gold hit a new record high Thursday as talk of further interest rate cuts in the U.S. sparked a flurry of buying and pushed the metal even closer to its next big target of $900 a troy ounce.

As of 1830 GMT spot gold had hit an all-time high of $895.50/oz, breaking above Wednesday's record high of $891.50/oz, following comments by U.S. Federal Reserve chairman Ben Bernanke, traders said.

Bernanke said Thursday that more rate cuts "may well be necessary" as downside risks to the economy "have become more pronounced."

The comments caused the U.S. dollar to weaken against the euro, which hit a high of $1.4815.

Financial markets expect as much as 0.75 percentage point of additional cuts in the fed funds target rate by the end of March, an expectation that seemed supported by Bernanke's remarks Thursday.

"Buyers are just waiting for opportunities to get back into the market," said TheBullionDesk analyst James Moore. Spot gold slipped from its high late Wednesday and some analysts predicted that gold could be in for a correction, but the interest rate talk prompted further buying.

Moore said the interest rate situation is helping to keep the U.S. dollar under pressure, and hawkish comments Thursday by the European Central Bank president added to fears of a U.S.-led slowdown.

Indications of further interest rate cuts to come out of the U.S. added further fuel to the spot gold bull run, which has seen prices rise as much as 7.5% since the start of the new year and 40.7% from the start of 2007.

Additionally, market uncertainty surrounding mortgage lenders and bond insurers, if it intensifies, is likely to encourage further gold buying, along with intensifying recession fears, said HSBC analyst James Steel.

Gold is seen as a hard asset when equities are volatile, and as a protection against inflation, with fears of that growing amid rising oil prices.

While $900/oz is seen as the next target, many investors are predicting this is just the beginning of a bull run with a few more years to go.

Strong fundamentals of constrained mine supply against a backdrop of economic uncertainty are likely to lift spot-gold toward $1,200/oz, James Burton of the World Gold Council said.

Momentum in the gold bull run is being led by investor interest, as indicated by the demand for exchange traded funds. That demand is expected to cause gold to average $850/oz in 2008, with $1,000/oz likely to be hit before the year's end, said New York-based Midas Fund manager Thomas Winmill.

But he said while investor interest has skyrocketed, physical demand, particularly in gold jewelry-hungry India, has tailed off.

"So we will have to see if investor demand can overwhelm that," Winmill said.

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