Official says China should diversify reserves, sending the dollar lower
By Polya Lesova, MarketWatch
Last Update: 1:02 PM ET Nov 7, 2007
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NEW YORK (MarketWatch) -- Gold futures surged to their highest level since 1980 on Wednesday, as a broad-based sell-off in the U.S. dollar boosted the metal's appeal as an inflation hedge and a safe haven.
Gold for December delivery rallied $10.60, or 1%, to $834 an ounce on the New York Mercantile Exchange.
It hit an intraday high of $843.50 in regular trading. Earlier, in electronic trading, the contract surged to a high of $848, a level not seen since 1980.
The record high for Nymex gold was $875 set on Jan. 21, 1980, and the record settle was $825.50 set on the same date.
"The U.S. dollar continues its slide, bringing in more buying into gold and silver," said Peter Spina, an analyst at GoldSeek.com, in emailed comments.
Dollar tumbles on Chinese comments
The U.S. dollar tumbled to new lows on Wednesday after a top Chinese official called for the country to shift more of its huge foreign exchange stockpiles out of the beleaguered greenback.
Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, was quoted by wire services as saying China should shift more of its $1.43 trillion of currency reserves into "stronger currencies," such as the euro, to offset "weak" currencies like the dollar. Read more.
"Such talk only adds to the pressures the U.S. dollar is facing and with other major currencies getting pricey, such as the euro, gold becomes even more attractive," Spina said. "Gold has historically been money and is returning to the center stage once again." This is a secular bull market in gold, he said.
"This market is poised to go much, much higher in terms of U.S. dollars," Spina said. "Those holding paper dollars, such as the Chinese who are looking for a way to preserve their purchasing power, are turning in greater numbers to the precious metals."
The dollar index, which tracks the performance of the greenback against a basket of major currencies, tumbled 0.8% at 75.44. See Currencies.
After rallying earlier, crude-oil futures reversed course and traded lower on the day Wednesday. See Futures Movers.
On Tuesday, gold futures staged another rally, closing up $12.60 at $823.40.
"Given the trend of the current trend, we envisage further gains, with no serious reversal until $850 to $870 at the earliest," said analysts at Commerzbank. "However, if gold manages to hold on above the latter figure for any length of time, it could then overshoot and advance rapidly to as much as much as $1,000."
Mark O'Byrne, director at Gold and Silver Investments Ltd., said in a research note: "At some stage, there will be a sharp correction [in gold prices]; however, some analysts are postulating that the correction could be when gold reaches $900."
"The correction will likely be sharp, but short, and gold will likely bounce back from any correction in short order due to marked increase in macroeconomic risk in the world and consequent safe-haven demand," O'Byrne said.
Also on Nymex, silver for December delivery gained 8 cents at $15.46 an ounce.
Other metals prices declined. January platinum fell $21.70 at $1,462 an ounce and December palladium dropped $3.70 at $376 an ounce.
December copper fell 8.25 cents, or 2.5%, at $3.2585 a pound.
Gold warehouse inventories dropped 100,559 troy ounces to stand at 7.2 million troy ounces as of late Tuesday, according to Nymex data. Silver inventories were unchanged at 133.9 million troy ounces, while copper supplies were virtually unchanged at 18,948 short tons. End of Story
Polya Lesova is a MarketWatch reporter based in New York.
