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Gold extends rally, hits 22-year high

Gold surged past $510 an ounce, closing at its highest level in 22 years as investment funds continued a recent buying spree.
/ Source: The Associated Press

Gold prices rose Tuesday for the fourth day in a row to levels not seen since the early 1980s.

Gold for spot delivery soared as high as $511.20 an ounce before settling at $510.20, up $1.30 from a day earlier on the New York Mercantile Exchange. Spot gold prices have not risen that high since 1983.

The recent surge in gold and other precious metals has been driven largely by fund buying as interest grows in gold as a monetary hedge.

The price also was boosted by an apparent lack of producer selling, coupled with recent buying interest by South American central banks.

Sentiment remains bullish for gold, analysts said. As a result, an early profit-taking decline became a buying opportunity and futures prices finished with a gain Tuesday.

The most-active February gold contract settled with a gain of $1.20 to $513.80. Earlier, the contract hit a fresh contract high of $514.80, then turned and fell as far as $507.70 before rallying again.

“We tried to reverse to the downside and didn’t get all that far,” said Tim Evans, an analyst with IFR Pegasus. “So we bobbed back up. The market remains buoyant in terms of its sentiment.”

“That same demand that we’ve been seeing for weeks now continues to underpin prices,” said Dave Meger, senior metals analyst with Alaron Trading Corp. “So as of right now, pullbacks are still considered to be a buying opportunity.”

The demand for gold in recent weeks appears to be broad-based — physical, investment and speculative, Meger said.

Evans pointed out that that Canada-based Goldman Sachs analysts included buying gold as one of their top trading ideas for 2006.

While gold has rallied sharply since September, Evans pointed out that the peak from December 2004 to Tuesday’s high in the nearby gold futures was roughly 12 percent.

“That is better than a decline of 12 percent, but it’s not necessarily this outrageous risk-adjusted rate of return,” he said.