Gold Reaches 25-Year High as Oil Gains Renew Inflation Concerns

February 2, 2006
Bloomberg

Gold rose to a 25-year high in London as gains in crude-oil prices increased speculation that inflation will accelerate, eroding the value of assets such as stocks and bonds.

Gold rose 18 percent last year in London as investors bought the metal as a hedge against record oil prices stoking inflation. Oil rose before the United Nations' atomic watchdog meets today to consider referring Iran's nuclear program to the Security Council, which may impose sanctions on OPEC's second-largest exporter.

``Rising oil prices will continue to keep gold prices buoyant this year as it's likely to lead to inflation,'' Ross Norman, an analyst at Saffron Walden, U.K.-based TheBullionDesk.com, said in an interview today.

Gold for immediate delivery rose as much as $3.85, or 0.7 percent, to $573.20 an ounce, the highest since January 1981. It traded at $572.99 at 10:09 a.m. London time.

The situation in Iran is a ``double whammy,'' for the gold market, Norman said. ``It increases geopolitical tension as well as oil prices, both of which are good for gold.''

Gold may rise as high as $580 by the end of the week, he added.

Crude oil for March delivery rose as much as 63 cents, or 1 percent, to $67.19 a barrel in electronic trading on the New York Mercantile Exchange. It traded at $66.75 at 10:14 a.m. in London. Prices are up 43 percent from a year ago.

URANIUM

The UN's International Atomic Energy Agency said yesterday it had found plans indicating Iran intends to build nuclear weapons.

Investor demand for gold will rise to 286 metric tons in the first half of this year from 263 tons in the second half of 2005, bolstered by political tension in the Middle East, London-based consultant GFMS Ltd. said last month.

Funds are also buying silver, said Peter Tse, a precious metals trader at ScotiaMocatta in Hong Kong.

Silver for immediate delivery rose as much as 17 cents, or 1.7 percent, to $9.93 an ounce. The metal has gained for five consecutive years, including 29 percent last year. It traded at $9.92 as of 10:10 a.m. in London.

``Silver could break $10 in the next month or so,'' Tse said.

Among other precious metals for immediate delivery in London, palladium gained $3, or 1 percent, to $296.50. Platinum earlier advanced $10.50, or 1 percent, to $1,082 an ounce, a record.

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