Fri, May 12, 2006 - Page 11 News List

Heavy gold trade in Europe follows 25-year Asian high

AP , LONDON

Gold traded strongly in Europe after hitting 25-year highs in Asian trading hours yesterday, apparently viewing the US dollar's recovery as a short-term response to higher interest rates.

Persistent concerns about Iran's nuclear ambitions also lifted the metal, which is viewed as a hedge against currency weakness, inflation and geopolitical instability.

The June gold contract rose as high as US$714.90 an ounce in Asian electronic trading on the New York Mercantile Exchange before falling back to US$712.30 in afternoon European trading -- still well above its close on Wednesday of US$705.70 an ounce (US$24.88 a gram).

In London, spot gold was trading at US$708.40 at midday, an increase from US$701 late on Wednesday.

The gains came despite the US dollar's modest recovery against other major currencies after the US Federal Reserve lifted interest rates to 5 percent and left the door open for further hikes.

Gold investors focused instead on the inflationary fears expressed in the Fed's statement and on the possible inflationary impact of surging prices of crude oil prices and industrial metals, traders and analysts said.

At the same time, speculation that China and other Asian countries may be turning to gold as a way to reduce their foreign reserve holdings -- mostly denominated in US dollars -- on a weakening greenback is also spurring investor sentiment, participants said.

The all-time record for gold was set in January 1980 when it hit US$875 an ounce in a huge day-and-a-half surge. But it quickly fell back under US$700.

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