US gold futures extended a record – breaking advance across the $1,000 an ounce on Thursday, as investors seek protection from the sliding dollar and an inflation hedge as oil prices hit all – time highs, as well. Investors see gold as a hard asset and safe haven, facing economic uncertainties. As long as the dollar continues to weaken, bullion looks set to continue its climb. The dollar plunged below 100 yen (99.73) for the first time in more than a decade on Thursday and hit a record low versus the euro on Friday (1.5650) as worries deepened on Wall Street that the United States had entered a recession and with traders citing rumours of more hedge fund failures related to concerns about damaged credit markets. Oil exporting countries have started to put their money into the euro, yen and gold. Short – term, gold is due for a correction, long – term, it is valued at over $2,000 an ounce, because all commodities are above their inflation – adjusted 1980 prices except for gold. Gold has gained nearly 20% in 2008, driven by buying from investors and speculators on expectations of further interest rate cuts in the United States and record high oil prices, which raised its appeal as a hedge against inflation. Gold hit $850 an ounce in January 1980, as high inflation linked to strong oil prices, plus the Soviet intervention in Afghanistan and the impact of the Iranian revolution, prompted investors to buy the metal. After adjusting for inflation, the 1980 high is equivalent to $2,119.30 an ounce at 2007 prices, according to precious metals consultancy GFMS.
Oil fell on Friday as investors booked profits after crude hit a record $111 a barrel on Thursday, but the dollar’s weakness is likely to cover losses. Fears of a recession in the world’s top consumer (the United States) have collapsed the dollar, lifting the nominal prices of almost all commodities traded in the currency, despite the risk of a downturn in consumption. Strains in the credit market, following the biggest US job losses in five years, have depressed equities and the dollar while prompting many investors to seek safety in commodities including oil. A sharp drop in US crude oil inventories and OPEC’s decision last week to hold supplies steady have also boosted oil prices. OPEC President Chakib Khelil was quoted on Monday as saying that speculation and political tension would keep prices at triple digits through the year. Khelil, also Algeria’s oil minister, said prices could retreat in 2009 with a recovery of the US dollar following the election of a new US president. The Organization of the Petroleum Exporting Countries, supplier of more than a third of the world’s oil, has argued high prices do not reflect fundamentals and are driven by speculation. Inflation in consumer nations have been increasing due to high energy costs, but the OPEC again shrugged off calls for more oil to pull record prices back, giving support to crude prices.
