PRECIOUS METALS: Gold Futures Extend Record, Contract Highs

PRECIOUS METALS: Gold Futures Extend Record, Contract Highs

By Allen Sykora

Of DOW JONES NEWSWIRES

Gold futures hit record and life-of-contract highs Monday on the same factors that have been sending it to repeated fresh historical peaks since the start of the year - Federal Reserve rate-cut expectations, dollar weakness, inflation worries, global tensions and investment and momentum-based buying.

Platinum likewise hit record highs, while silver touched life-of-contract highs.

February gold rose $5.70 to $903.40 an ounce on the Comex division of the New York Mercantile Exchange. Around the time that Comex pit trade was closing, the all-electronic February contract at the Chicago Board of Trade was up $7.30 to $904.10.

Comex and CBOT February gold peaked overnight at contract highs of 915.90 and $916.10, respectively. The lightly traded Comex January futures got as high as $907.30, a Comex record for a spot-month contract.

Meanwhile, March silver rose 5.5 cents to $16.425. Shortly after it closed, CBOT March silver was up 4.3 cents to $16.417. Comex and CBOT silver peaked at overnight contract highs of $16.715 and $16.703, respectively.

Johnson Person, president of NationalFutures.com, listed a host of factors combining at the same time to propel gold sharply higher.

"There is dollar weakness and follow-through buying in gold with a technical breakout," he said. "There is strong momentum and a strong trend intact.

Fears of inflation persist. There are fear of a recession and economic meltdown as the Fed lowers interest rates, which is perceived to devalue the dollar even further and is causing investors to flee to the precious-metals arena."

The euro rose to $1.4913 early in the day, its strongest level since hitting a record high of $1.4966 on Nov. 23.

Charles Nedoss, senior account manager and metals analyst with Peak Trading Group, said the dollar index took out its previous low for the young year of 75.429 on Jan. 4, in turn its weakest level since late November. The index bottomed at 75.361.

"You had crude oil higher," said Nedoss. "And you've got stuff going on in Iran. And you have momentum."

Shortly before the gold pit closed, February crude oil was $1.31 a barrel higher at $94. U.S.-Iran tensions have been brewing for some time due to concerns about Iran's nuclear intentions, and most recently a confrontation in the strategic Strait of Hormuz between Iranian speedboats and U.S. warships.

Funds have been good buyers, reported Nedoss.

"At this point in time, it (gold) seems to be the best place to park money as we continue with uncertainty in the equity markets," Person added.

Person described a "stag-flation" environment in which gold potentially could add another 2% to 5% in the next 30 to 60 days and retain its value, whether equities hold around current levels or extend recent weakness. AS for inflation, not only do energy prices remain firm, but the most recent U.S. Department of Agriculture supply/demand report was supportive for a number of agricultural commodities, sending grains sharply higher, he said.

Spot gold had been consolidating slightly below its previous record 1980 high around $850 from November into late December, before breaking to a fresh record on the first trading day of the New Year. The record was extended to $914.40 Monday, according to one price vendor.

Analysts in late December called for the metal to test $900, but it subsequently broke above this "a lot faster" than many were looking for, said Nedoss.

"I was looking for mid-year about $925," he said, listing a target only $9.10 above the session high for the February futures.

Gold and silver did back down from their peaks.

"You're seeing a little profit-taking there," said Nedoss. "Also, the dollar did bounce off its bottom."

Now, said Nedoss, many traders are looking for gold futures to next target the area around $950, then $1,000. However, Person said he anticipates gold first could run into some profit-taking pressure around the $920 to $940 area.

Several observers said the key for short-term direction in gold could hinge on a heavy slate of U.S. economic data this week. Collective readings hinting at further economic weakness may be seen as a sign for even more Federal Reserve rate-cut easing and ensuing dollar weakness, which in turn would further support gold, and vice-versa, observers said. Already, the February federal-funds futures are factoring in a 100% probability of a 50-basis-point rate cut at the end of January.

"A raft of U.S. data this week will show how the economy is faring, including retail sales, industrial production, housing and consumer prices," said a daily research note from MKS Finance. "The U.S. dollar is likely to remain under pressure as the outlook on the U.S. economy is in doubt and lead to fears of a global slowdown. All eyes now are on quarterly results which will be released by Merrill and Citigroup, among the hardest hit by the U.S. subprime mortgage defaults and the resulting crisis."

Meanwhile, April platinum rose $14.60 to $1,584 an ounce, while March palladium gained $6.15 to $387.45.

"It's all dollar-related," said a desk trader, also noting the strength in gold.

He cited mainly speculative buying in the platinum group metals. "I don't think it has much to do with industrial buying these days," he added.

The nearby January platinum futures hit a peak of $1,586 that is a record for a spot-month contract. The most heavily traded April futures hit a life-of-contract peak that was even higher - $1,597.40. Most-active-March palladium hit a two-month high of $388.