Gold price strikes record high, oil slides

14th May 2010, Comments 0 comments

Gold prices smashed their way to fresh record highs close to 1,250 dollars this week, with demand driven by investors seeking shelter from the eurozone debt crisis, analysts said.

Oil prices tumbled however as a strengthening dollar made the raw material more expensive for holders of other currencies.

"Prices are being swayed by shaky financial markets amid an environment dominated by sovereign risk, contagion concerns and a firmer dollar," said Barclays Capital analyst Sudakshina Unnikrishnan.

"However, contagion fears cannot obscure accumulating evidence of an exceptionally strong cyclical rebound in commodity demand, or signs that the recovery is starting to generate some longer-term sustainability as measures of trade, employment and consumer spending are all improving fast."

PRECIOUS METALS: Gold soared to 1,249.40 dollars an ounce Friday on the London Bullion Market. Gold's surge dragged sister metal silver to a two-year high of 19.64 dollars an ounce.

Heightened concerns about the risk of contagion from Greece's debt woes have attracted fresh inflows of cash into gold, which is widely regarded as a safe bet in times of economic uncertainty.

"As long as scepticism with the eurozone plan remains synonymous with buying gold as a safe haven, we do not see any obstacle for 1,300 dollars per ounce before quarter's end," said CMC Markets analyst Ashraf Laidi.

Markets were buoyed on Monday after the European Union and the International Monetary Fund gave their backing to a 750-billion-euro rescue plan for crisis-hit euro countries aimed at limiting the fallout from Greece.

However, many investors remain unconvinced that the massive scheme will resolve the crisis over levels of sky-high state debt.

"The sheer scale of fiscal deficits facing numerous countries is likely to prompt further diversification ... and should ultimately propel gold to fresh highs," said analyst James Moore at specialist metals website

Traders remain fearful that the Greek crisis could spread to other peripheral eurozone economies, notably Portugal, Ireland, Italy and Spain. That could send further shockwaves through the global financial system.

"Persistent worries that the debt crisis in the eurozone could spill over to other countries -- despite the EU's 750-billion-euro aid package -- and thus contribute to a destabilisation of the financial system are driving investors to the yellow metal," noted Commerzbank analyst Carsten Fritsch.

"Gold should remain in strong demand as a safe haven in times of crisis and the flight to safety should go on."

Prior to this week, the precious metal forged previous record highs late last year on the back of inflationary fears and increasing moves by central banks to diversify assets away from the dollar.

Gold, whose two main drivers are jewellery and investment buyers, is also regarded as a good store of value in times of higher inflation.

Despite the metal's record-breaking run, London-based consultancy Capital Economics predicts that gold will lose its sparkle later this year.

"Unless the government of a major economy actually defaults, or the dollar collapses, we continue to expect gold prices to be back below 1,000 dollars by the end of the year," Capital Economics analyst Julian Jessop said.

"The EU rescue package should be enough to avoid an imminent financial meltdown in the eurozone," he added.

"But the required fiscal tightening will undermine the economic recovery in the region, which should keep the euro weak and dollar strong."

By late Friday on the London Bullion Market, gold climbed to 1,236.50 dollars an ounce from 1,202.50 dollars the previous week.

Silver surged to 19.64 dollars dollars an ounce from 17.70 dollars.

On the London Platinum and Palladium Market, platinum rallied to 1,721 dollars an ounce from 1,651 dollars.

Palladium grew to 536 dollars an ounce from 505 dollars.

OIL: Oil prices tumbled further this week, hit by stubborn eurozone economic concerns, a strong dollar and high US crude stockpiles, traders said.

The market began the week on a bright note, soaring on Monday after a one-trillion-dollar EU-IMF eurozone rescue plan eased market concerns over the eurozone financial crisis.

However, prices have since fallen as market enthusiasm waned for the massive bailout plan, while concern grew about higher Chinese inflation that could slow global economic growth.

Oil also took a major hit from the stronger dollar, which dented demand.

The euro tumbled to 18-month dollar lows under 1.24 dollars this week, as the single currency was plagued by concerns about debt and deficits in the eurozone.

Meanwhile, the US government's Department of Energy revealed on Wednesday that American crude stockpiles had risen by 1.9 million barrels last week, more than double the amount forecast by analysts.

And crude stockpiles at the key Cushing, Oklahoma terminal, jumped to a record 37 million barrels from 36.2 million the prior week.

"Crude oil prices came under selling pressure this week, following record oil inventories at Cushing and amid general uncertain and fragile economic conditions in the eurozone," said Sucden analyst Myrto Sokou.

"It seems that global crude oil demand has not rebounded yet to the extent that global oil supply has, and this is possibly going to weigh on crude oil prices in the near term."

Elsewhere this week, the Paris-based International Energy Agency (IEA) cut its projection for global oil demand this year in the face of public finance pressures in Europe that could drown recovery "in an ocean of public debt."

Worldwide oil demand is projected at 86.4 million barrels a day this year, up 1.9 percent from 2009 but 220,000 barrels a day below the previous IEA estimate.

"The economic recovery is at risk of drowning in an ocean of public debt," the IEA said in its monthly report, adding that "downside risks remain a clear and present danger".

Oil prices had already collapsed by more than 10 percent in value last week as the market was rocked by contagion fears about the Greek debt crisis.

By late Friday on the New York Mercantile Exchange, Texas light sweet crude for delivery in June sank to 73.25 dollars from 75.81 dollars a week earlier.

On London's Intercontinental Exchange, Brent North Sea crude for June delivery dropped to 77.75 dollars compared with 78.55 dollars.

BASE METALS: Base metals prices mostly fell.

By Friday on the London Metal Exchange, copper for delivery in three months rose to 6,908 dollars a tonne from 6,891 dollars a week earlier.

Three-month aluminium inched up to 2,093 dollars a tonne from 2,090 dollars.

Three-month lead fell to 1,950 dollars a tonne from 1,999 dollars.

Three-month tin dipped to 17,500 dollars a tonne from 17,575 dollars.

Three-month zinc slipped to 2,050 dollars a tonne from 2,089 dollars.

Three-month nickel slid to 21,650 dollars a tonne from 22,232 dollars.

GRAINS AND SOYA: Maize, soyabean and wheat prices all fell.

By Friday on the Chicago Board of Trade, maize for delivery in July eased to 3.64 dollars a bushel from 3.72 dollars the previous week.

July-dated soyabean meal -- used in animal feed -- dropped to 9.56 dollars from 9.60 dollars.

Wheat for July slid to 4.74 dollars a bushel from 5.10 dollars.

COCOA: Cocoa prices fell, one week after striking a record high 2,430 dollars a tonne on keen investment fund buying.

By Friday on LIFFE, the price of cocoa for delivery in July fell to 2,232 pounds a tonne from 2,368 pounds the previous week.

On the NYBOT, the July cocoa contract decreased to 2,858 dollars a tonne from 3,042 dollars.

COFFEE: Coffee prices rose on lingering concerns over tight supplies.

By Friday on LIFFE, Robusta for delivery in July rose to 1,392 dollars a tonne from 1,358 dollars the previous week.

On the NYBOT, Arabica for July gained to 136.25 US cents a pound from 132.30 cents.

SUGAR: Sugar prices recovered after hitting one-year lows a week earlier.

By Friday on the New York Board of Trade (NYBOT), the price of unrefined sugar for delivery in July climbed to 14.88 US cents a pound from 13.64 cents the previous week.

On LIFFE, London's futures exchange, the price of a tonne of white sugar for August increased to 470 pounds from 435.80 pounds.

RUBBER: Malaysian rubber prices fell on slack local demand, dealers said.

The Malaysian Rubber Board's benchmark SMR20 dropped to 282.95 US cents a kilo from 291.85 cents the previous week.


© 2010 AFP

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