Gold Futures Climb to More Than $600 an Ounce for the First Time in 25 Years

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Gold Futures Climb to More Than $600 an Ounce for the First Time in 25 Years

 

Yahoo Finance ^ | 4/06/2006 | Madlen Read, AP Business Writer

 

NEW YORK (AP) -- Gold futures climbed Thursday to more than $600 an ounce for the first time in 25 years, as other surging commodities, especially in the energy markets, stoked fund-buying momentum.

 

On the New York Mercantile Exchange, June gold futures, the most active contract, rose to a high of $601.90 an ounce Thursday in Asian trading. In later trading in New York, the contract eased back to settle at $599.70 an ounce after traders took profits, but was still up $7.20 from late Wednesday.

 

Spot gold, which peaked at $595.60 an ounce, settled up $7.30 at $595.20 an ounce.

 

Gold prices have been pushed higher by the strength in other commodity prices, such as oil, which has been rising on supply worries and geopolitical tension, and silver, which has seen surging interest in recent weeks due to an upcoming silver exchange-traded fund planned by Barclays Global Investors.

 

May silver rose 34 cents to settle at $12.045 on Nymex.

 

Meanwhile Thursday, crude-oil futures rose 87 cents to settle at $67.94 on Nymex.

 

"Commodity prices have been rocketing so it would seem perverse if gold didn't too," said Clem Chambers, CEO of financial data Web site ADVFN, in a note. "With insufficient supply to meet consumption, with uncertain political developments in the Middle East, with inflation worries slowly but surely increasing and with emerging markets, who are historically strong buyers of gold, also booming; it is hardly surprising that gold is rising."

 

According to Leonard Kaplan, president of Prospector Asset Management, there hasn't been a close correlation between energy prices and gold prices for a long time, but now the rationale is that rising energy prices will cause inflation, and inflation boosts precious metals.

 

"It's money chasing money," he said, adding that commodities across the board, from copper to zinc to sugar, have seen big increases without any fundamental reason. "Money is pouring into them simultaneously, without cause or concern or interest in what the values are, or what it's going to be used for. It's all momentum -- it's the flavor of the year."

 

Some analysts, however, say the rise in gold is linked more to a weakening dollar than inflation worries.

 

John Doody, editor of the gold research letter Gold Stock Analyst, said fears of a lower dollar, thanks to the current account deficit, are driving the long-term gold bull market, which many market watchers say really began in 2001.

 

"The dollar is still clearly overvalued," which pushes up gold prices because gold is an alternative investment to the dollar, Doody said.

 

Doody does not expect rising gold prices to immediately or directly affect consumers -- "the value of jewelry is really in the artistic aspect of it; you melt down a piece of gold jewelry, you might get a third of its value," he said.

 

But if the surge in gold futures keeps up, consumers may eventually see it trickle down to the price tags on charm bracelets and wedding rings.

 

"Ultimately if the cost goes up ... over some period of time, the jewelry industry would need to pass that through," said Tiffany spokesman Mark Aaron, adding that the increase still wouldn't be as sharp because labor and craftsmanship factor largely into jewelry pricing.

 

It's impossible to say how high gold prices will rise and for how long, but many market watchers are saying they could easily surpass the record of about $800 an ounce, and some even say $1000 is a possibility.

 

"While few will predict $1000 an ounce, few would bet against it," Chambers noted.

 

"As more and more people pour more and more money into commodities," Kaplan said, "it could go anywhere."

 

But Kaplan added that he believes the surge in the commodities market is a bubble that will eventually deflate, especially as the Federal Reserve keeps hiking interest rates. "As interest rates go higher and higher," he said, "it makes it harder for these markets to continue their rise."