The price of gold rose to a fresh 25-year high Wednesday as investors sought a safe haven amid a weakening U.S. dollar and worries over the West’s confrontation with Iran.
Gold slipped later in the day, however, as traders took profit before the release of a statement by the Federal Open Market Committee. Most market watchers are expecting the Fed to boost interest rates by a quarter-point for the 16th consecutive time to 5 percent, but they will also be examining the statement’s language closely for any indication of a future pause in the tightening campaign.
June gold futures rose as high as $706.80 an ounce in electronic trading, the highest since September 1980 and up from its settlement Tuesday of $701.50 an ounce on the New York Mercantile Exchange. By midday trading in New York, the price had eased back to $701 an ounce.
Investors have driven up prices of the metal, considered a hedge against currency weakness, inflation and financial instability, after a recent tumble in the U.S. dollar.
“It’s a cocktail for positive stimuli for gold,” said Nick Moore, global commodities analyst at ABN Amro in London. “You get the spillover of people buying into commodities, whether its copper, aluminum, soft commodities or precious medals. People are moving there.”
Gold also has gained on anxiety over Iran’s nuclear program, which the United States and other nations fear is a cover to develop nuclear weapons. The United Nations has threatened to impose sanctions if Iran doesn’t give up its nuclear program, which Tehran says is purely to generate electricity.
“Concerns about the whole Iran-U.S. problem and potential conflict there and/or lower supplies of oil out of Iran if it has sanctions imposed on it” are driving up the price, said James Thurtell, a commodities strategist at the Commonwealth Bank of Australia.
Thurtell believes gold may go as high as $800 an ounce by year’s end, while Moore said: “I think $1,000 is by no means an outrageous forecast.”
A drop in the dollar is also a factor as “people think that perhaps the U.S. rate hike cycle is drawing to a close,” he said.
The general strength of the commodities market, with gains in metals such as silver and platinum, is also lifting gold prices.
John Meyer at Numis Securities attributed the latest gains for gold to economists in China recommending the country’s central bank holds more gold.
China Gold News suggested that the country quadruple its gold reserves to better balance its foreign exchange reserves, which are now overwhelmingly held in U.S. dollars, mostly Treasuries. It said bullion reserves account for 1.3 percent of China’s foreign exchange reserves, less than the 3 percent to 5 percent seen in other countries.
The all-time record for gold was set in January 1980 when the metal hit $875 an ounce in a huge day-and-a-half surge. But it quickly fell back under $700.
Numis Securities also lifted its stock price targets for several gold mining companies in reaction to the high prices.
Randgold shares were up 5.2 percent at 1,462 pence ($27.23) on the London Stock Exchange. In Australia, one of the world’s biggest producers of gold, Newcrest Mining Corp. jumped nearly 3 percent to 24.05 Australian dollars ($18.57), while Lihir Gold Ltd. soared more than 7 percent to 3.60 Australian dollars ($2.77).