Gold breaks above $900/oz on currency volatility

Gold breaks above $900/oz on currency volatility
Fri Jan 23, 2009 3:42pm EST Email | Print | Share| Reprints | Single Page[-] Text [+]
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By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold rallied 5 percent on Friday, briefly breaking above the $900 an ounce level as volatile currency markets and solid investment demand spurred bullion buying.

The precious metal reached record highs in both sterling and euro terms, signaling bullion's strength against not only the U.S. dollar but also currencies across the board.

"I think that people are coming to the new year realizing that the financial crisis is going to last longer than they had expected," said Caesar Bryan, portfolio manager of GAMCO Gold Fund.

Bryan, who manages $350 million in fund assets, said that more nervous investors were turning to gold because of high volatility in the foreign exchange market.

Spot gold rose as high as $902.50 an ounce, which was the loftiest price since October 10. It was at $895.80 an ounce at 2:19 p.m. EST, up 4.7 percent from Thursday's last trade of $855.50.

It rose to an all-time high of 700.37 in euro terms, and a record 659.71 pounds when priced in sterling.

U.S. gold futures for February delivery settled up $37.00, or 4.3 percent, at $895.80 an ounce on the COMEX division of the New York Mercantile Exchange.

"There is ongoing nervousness in the market about the banking sector," said Tom Kendall, precious metals strategist at Mitsubishi. "If you are looking to park your cash...there are not many options around and gold is one option."

The dollar climbed to a 23-year high against sterling and a six-week high against the euro as weak UK and euro zone data and worries about the global economy kept investors risk averse.

"Investors are getting out of currencies and getting into gold," said Simon Weeks, director of precious metals at the Bank of Nova Scotia.

While strength in the dollar against the euro tends to weigh on gold, which is often bought as a hedge against weakness in the U.S. currency, this correlation was trumped by interest in bullion as a safe haven.

"The relationship between gold and the U.S. dollar appears to be broken at present," said Fairfax analyst John Meyer. "Normally a stronger dollar pushes down gold."

"Clearly there is investment money flooding in due to the perceived security of gold," he said.

ETF HITS RECORD

Demand for investment products such as coins and bars and physically backed vehicles such as exchange-traded funds has been strong this week. Continued...