NEW YORK (Reuters) – Gold futures jumped above $700 an ounce Tuesday, hitting a fresh 25-year high, fueled by relentless investor buying on geopolitical tensions and worries about inflation.
Dealers said talk that economists urged China to quadruple its gold reserves to 2,500 tons from the current 600 tons because its foreign exchange reserves had become the world’s largest also stoked the gold rally.
A jump in platinum and copper overnight in Asian trade boosted gold as well, hoisting its price 3 percent by midday.
“I think that platinum helped gold more than anything else,” said a gold trader at a precious metals refiner in New York. “But that China story certainly helps.”
June delivery gold on the New York Mercantile Exchange’s COMEX division rose $21.90 to $701.80 an ounce, the loftiest level for futures since September 1980.
In January of that year, New York gold futures set their record high above $870.
Investors often seek the perceived safety of a hard asset like gold in times of political uncertainty or when inflation is rising.
A weaker dollar this week has fueled gold’s continuing rally after it broke above $600 in April, because investors are turning to the metal as an alternative to the currency, dealers said.
“The weak dollar certainly is not hurting – the steady selling of the dollar helps gold,” said the gold trader.
Talk was swirling on Tuesday that Chinese accounts were active in spot gold after a report on China’s reserves.
“China should raise its gold reserves so those reserves can account for 3 percent to 5 percent of the foreign exchange reserves, instead of current 1.3 percent,” the China Gold quoted Liu Shanen, an expert at Beijing Gold Economy Development Research Center, as telling a conference.
Meanwhile, jitters over Iran’s nuclear ambitions and inflated oil prices also bolstered the market as a safe-haven investment.
U.S. crude oil rose 1.7 percent to $71 a barrel after a letter from Iran’s president to President Bush failed to move the countries closer to an agreement on Tehran’s nuclear program.
The United States has led international action against Iran’s atomic plan, which it says is aimed at building weapons. Iran says it needs nuclear fuel for civilian use.
James Moore, analyst with TheBullionDesk, said that a break above $700 in bullion was likely to generate fresh momentum as investors and speculators build on their bullish positions.
“While the charts suggest the metal is overbought, the scale of buying flowing into the market seems set to drive prices ever higher with the metal’s $850 all-time high now a realistic target.”