updated 11/8/2004 4:35:02 PM ET 2004-11-08T21:35:02

Gold reached a new 16-year high Monday in London as the dollar sank to a record low against the euro and was lower against most other major currencies in European trading.

Major Market Indices

Analysts said the gyrations were fueled by worries over the large U.S. budget deficit and fears of increased international tensions following the re-election of U.S. President George W. Bush.

Spot gold reached $435.25 a troy ounce during trading Monday in London as investors sought refuge in the metal. That was its highest level on that market since August 1988, when it reached $449 a troy ounce. The price later dropped back to $432.50 by late trading in London.

Meanwhile, the euro climbed to a new high of $1.2987 in European trading, then retreated to $1.2955, up from $1.2940 late Friday. Later, New York trading, the euro slipped to $1.2911.

The 12-nation currency broke its all-time record on Friday, climbing above the previous mark of $1.2927 it set in February. The euro was introduced in 1999.

Gold traditionally rises as the dollar falls, and analysts said the metal is expected to rise further as the dollar remains weak.

“Gold remains very strong both due to external factors — the U.S. deficit and the election of George Bush — and internals, including continuing firm demand in places like India, where people buy a lot of gold at Diwali, and in China, which has liberalized its gold market,” said Ross Norman, director of The Bullion Desk, a precious metals Web site.

“I think it has legs to run into early next year and we could see gold topping $450,” he said. “But the Federal Reserve may raise interest rates, which will see the dollar recover and could bring gold back down for a while.”

The U.S. Federal Reserve meets Wednesday.

Other dollar rates Monday in Europe, compared to late Friday, included 105.49 Japanese yen, down from 105.65; 1.1793 Swiss francs, down from 1.1853; and 1.1916 Canadian dollars, down from 1.2013.

The British pound was quoted at $1.8579, up from $1.8467.

In late trading in New York, the dollar bought 105.51 yen and 1.1819 Swiss francs, while the pound traded at $1.8543.

In Zurich, the bid price for gold was $431.93, unchanged. Gold rose $5 in Hong Kong to close at $434.75. Silver traded in London at $7.49 bid per troy ounce, up from $7.44.

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