Gold rallied to its highest level in 28 years on Monday and targeted $800 an ounce as oil surged to a record peak and the dollar tumbled on speculation over a US interest rate cut. Other metals also jumped before easing in late trading, with platinum setting a life-time high, silver rallying to its best level in eight months and palladium rising to a two-week high.
"The market is in a bull run. The consensus here is that gold could reach $800 in a short term and that's motivating the market higher. Also the risk for a US rate cut is feeding the trend," said Frederic Panizzutti, analyst at MKS Finance.
"Profit-taking always remains a risk, but it's not a major concern. We expected it at $720, $750, and $780 and we haven't really seen any sharp correction so far. As long as the factors behind the move are in place, we shall see additional inflows."
Spot gold rose as high as $794.40, its best level since January 1980 when prices surged to a record high of $850 an ounce. It was quoted at $789.30/790.10 by 1525 GMT, up from $783.80/784.30 in New York late on Friday.
Gold has surged 24 percent in the past 10 weeks, with strong oil prices elevating its role as a hedge against inflation and a falling dollar lifting its appeal as an alternative investment. The metal price has doubled in about 3 years.
After adjusting for inflation, gold's record high level of $850 was equal to $2,079 an ounce at 2006 prices, according to metals consultancy GFMS Ltd. The dollar slid to a record low against a basket of major currencies on expectations of a Federal Reserve interest rate cut this week and perhaps another move by the end of the year.
Oil leapt to a record high for a third day, surpassing $93 a barrel as Mexico briefly halted one-fifth of its production. "The slumping US dollar is supporting precious metal prices and new all-time highs in crude oil are also supporting them," John Reade, head of metals strategy at UBS Investment Bank, said in a daily report. "But with positioning so long in all metals - and no sign of supportive jewellery or industrial demand - a correction, when it comes, will likely be brutal."
The possibility of a large-scale Turkish incursion into northern Iraq to root out Kurdish rebels was also keeping the oil and precious markets on edge. The tension has sparked worries of a broader conflict in the oil-rich Middle East.
"Gold continues to be driven by the foreign exchange markets and strong oil prices, with fresh investor and fund buying seen coming into gold," Tom Kendall, metals strategist at Mitsubishi Corporation, said.
"The dollar will remain under pressure at least until the US rate cut decision on Wednesday. A correction in the dollar is overdue but it seems likely that gold will hit $800 first." The October 2008 gold in Tokyo hit a 23-year high of 2,943 yen per gram. US gold futures also jumped, with the December contract hitting a high of $798.30 in electronic trade, before easing to $792.20.
Bullion used to back StreetTRACKS Gold Trust, the world's biggest gold exchange-traded fund, climbed to a record high of 597.53 tonnes on Friday. However, the tonnage growth of the gold ETFs has slowed in October, analysts said.
Spot platinum rose to a lifetime high of $1,465 an ounce to reflect gold's rally. It was last at $1,454/1,458, against $1,454/1,458 in New York. Tokyo platinum futures also hit record highs.
Silver hit a peak of $14.45, its highest since February, before falling to $14.27/14.31, versus $14.20/14.23 an ounce in New York. It hit a 25-year high of $15.17 in May last year. Palladium was flat at $372/376 an ounce.
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