NEW YORK - Gold prices surged to a new quarter-century high of $700 an ounce Tuesday as funds bought into the market, driven by tension between the United States and Iran and expectations of a pause in interest rate hikes.
Iran's president wrote in a letter to President Bush that democracy had failed worldwide and lamented "an ever-increasing global hatred" of the U.S. government. Secretary of State Condoleezza Rice rejected the letter Tuesday, saying it didn't resolve questions about the country's nuclear program.
Analysts at TheBullionDesk.com said Washington's dismissal of Iran's letter gave way to the gold rally, noting that it appears that tension with Iran will likely rise again, and also that the dollar will stay under pressure. A weakening dollar typically encourages investors to instead turn to gold, considered a safer alternative to the U.S. currency.
June gold futures on the New York Mercantile Exchange rose to $700 an ounce in late-morning trading, a level not seen since late 1980. That's up more than $20 from Monday's closing price of $679.90.
Nymex platinum also hit a fresh record of $1,240 an ounce.
"It's all fund buying," said Leonard Kaplan, president of Prospector Asset Management, about the gains. He added, "the market still believes the Fed is going to pause, and they spin every bit of news that the Fed is going to pause."
Other bullish factors that also appear to be causing gold to rise include high oil prices and concerns that Bolivia's nationalization of the energy market there could spill over into the mining industry, said George Gero of RBC Capital Markets Global Futures.
Gold appears poised to rise still higher, said Kaplan. "There's nothing to stop it," he said. "Nobody is going to short it here."
Gold broke through the $600-an-ounce level for the first time in over 25 years on April 6. Many analysts say it could surpass its all-time record of more than $800 an ounce, reached in early 1980.
I would say that investors are getting scared now. The uncertainties within the news--the US-Iran crisis, the Bolivian nationalization of the energy market, the Iraq war, and continued inflation fears with rising energy prices--all are contributing to a state of nervous watching of the market. There is a fear that any of these troubled spots erupt into a full-blown crisis, we could see energy prices, and gold prices shoot up through the roof, perhaps sparking inflation in the U.S. So investors are hedging their bets by adding gold to their portfolios as an insurance policy against rising inflation.
And gold may still rise even further. The problem is that these troubled hot spots have not been diffused. There is no resolution to any of these crisis--in fact, the US-Iran nuclear crisis could result in a U.S. attack against Iranian nuclear facilities as a political means to improve both the Republicans and President Bush's poll numbers before the November elections. As these hot spots continue to smolder, the danger of their exploding into a crisis will also grow, causing an increase in both energy prices and inflation. It is only a matter of time.
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