Strong demand adds to gold's luster

Economic fears, abundance of petrodollars help push prices to near-18-year high

November 18, 2005|By THE DALLAS MORNING NEWS

DALLAS --A little bit of fear and oodles of petrodollars sloshing around the globe pushed gold prices to their highest level in almost 18 years yesterday.

Gold for December delivery rose $7.80, or 1.6 percent, to $486.90 an ounce on the Comex exchange in New York, the highest close since January 1988. At one point, prices hit $487.

"Demand for gold is increasing from all quarters," said Joe Foster, portfolio manager of the Van Eck International Investors Gold fund in New York. "There's really a global movement into gold."

Investors are fearful of inflation, the spiraling U.S. trade deficit and a possible collapse in housing - among other things - and they are looking for alternatives to U.S. and European stocks, currencies and bonds, he said.

Some of the other precious metals also soared. Silver hit an 11-month peak, and platinum prices hovered near 26-year highs. Gold in particular is considered a haven in perilous times.

But that's only part of the story. Middle East investors are lapping up gold with their petrodollars. And demand for gold jewelry in India and Asia continues to outstrip supply.

Jewelry accounts for 73 percent of the demand. Demand from jewelers and investors was 7.6 percent higher in the third quarter than in the corresponding period last year. Gold prices started moving significantly higher in July, then dipped a little this month before spurting again this week.

Not surprisingly, gold mining stocks were among the best performers this week. Shares of Newmont Mining Corp. jumped from less than $44 to $46.59 yesterday.

The question for investors is whether the bull market in gold is over.

The history of gold prices is pockmarked with promising rallies that fizzled. But Foster thinks momentum is sufficient to push gold prices above $500 an ounce.

"I would say $500 an ounce is a given," he said. "That's an important psychological level."

Speculators will be watching to see whether gold can break through $510 an ounce, its high reached in the mid-1980s. If that happens, all bets are off as to what the next level will be, Foster said.

However, some gold experts think gold prices will fall as investors take profits by selling their holdings.

"Most gold investors have never seen these levels," said Michael Cramer, president of Manfra, Tordella and Brooks Inc., a New York gold trader.

Gold futures surged to $873 an ounce in 1980, but that was during a period of rampant inflation of about 12 percent annually.

"That was then, and it is nothing like now," Cramer said.

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