Gold rises to record on fund buying

GOLD and platinum futures hit record highs and silver a 27-year peak overnight as commodities in general remained strong and the US dollar weak, leading to more fund buying.

"A lot of people are discussing the downfall in the US dollar," said one trader. "And we're seeing a tremendous surge in commodities across the board, not just metals, but base metals and energies. The investment appeal in all of the commodities is at a premium."

Most-active April gold hit a contract high of $US992 an ounce on the Comex division of the New York Mercantile Exchange, while nearby March hit a spot-month record of $US986.90. Most-active May silver hit a contract high of $US20.74. Nearby March peaked at $US20.61, the highest level for a spot-contract month in 27 years.

Meanwhile, April platinum peaked at $US2245 an ounce, which a spot-continuation chart shows to be a Nymex record.

Bill O'Neill, one of the principals with LOGIC Advisors, cited fund buying "in just about everything." In addition to the ongoing factors supporting gold for some time, he said, momentum-based and options-related activity added to the rises.

The metals pared their gains during the latter stages of the session on profit-taking, however, especially when it became apparent the much-talked-about $US1000 level in gold would have to wait at least another day, said one trader.

Comex April gold settled $US9.20 higher at $US984.20 an ounce on the Comex division of the New York Mercantile Exchange. As pit trade was closing, the April contract at the Chicago Board of Trade was up $US8.80 to $US982.80.

Comex May silver rose US26.5 cents to $US20.18. As it was closing, CBOT May silver was up US28c to $US20.188.

As gold was closing, the Continuous Commodity Index was up 10.14 points to 575.79. April crude was up $US1.78 to $US103.62 a barrel and hit a peak of $US103.95. Grains, base metals and softs were all stronger.

"Grains were screaming, metals were screaming. Funds are buying it," said Leonard Kaplan, president of Prospector Asset Management. "Everybody is convinced that the Fed is going to drop (interest rates) by 75 basis points."

The already-embattled US dollar hit a fresh record low against the euro - which tends to support gold - on a day that the Institute for Supply Management reported that its manufacturing index fell to 48.3 in February from 50.7 in January.

This took it below the 50 level generally seen as the breaking point on whether the manufacturing sector is contracting, although it was roughly in line with expectations for a 48 reading. The euro hit a record high $US1.5272 against the US dollar before giving back gains on profit-taking.

The smaller liquidity in commodities, compared to equities or fixed-income markets, tend to mean greater moves, Mr O'Neill explained.

"Even a modest amount of asset reallocation into commodities or new buying in commodities has a very material impact," he said.

However, he said, he offered some caution about the strength.

"The only danger here is you have a frenetic-type market atmosphere," he said. "When you have that, there is always the danger you'll have some catalyst come along and change the psychology and change direction, and you can have some very, very big moves.

"These markets are certainly at very dangerous trading levels. So you need to make sure you have at least some protection against the inevitable - which is that markets don't go up forever."

Mr Kaplan also cautioned that a "bubble" could be occurring.

"But it's a bubble that could last a long, long time," he added.

Meanwhile, April platinum rose $US60.90 to $US2241.60 an ounce. June palladium gained $US9.05 to $US585.70.

Besides rising with other precious metals, platinum has "its own very dynamic fundamental structure," Mr O'Neill said. The market was already considered tight at the end of 2007, then January brought news of electrical shortages at South African mines, which was especially supportive for platinum since the country accounts for roughly four-fifths of the world's supply.

The South African power shortages, which have curtailed mining activity there, continue to support the entire precious-metals sector, said said Peter Grant, senior metals analyst with USAGOLD-Centennial Precious Metals.

"It continues to impact the supply side of the equation, obviously more severely in platinum than gold," Mr Grant said. "But as platinum rises on concerns about the increasing deficit, the rest of the precious-metals complex is going to benefit as well."