Precious Metals Prices Rally Again on Investor Worries

From Reuters

Investors have suddenly rediscovered the allure of gold and, after taking the price swiftly above $400 an ounce, look set to drive it even higher, bankers said Wednesday.

Dealers reported hectic demand as the price of the long-neglected precious metal climbed to three-year highs.

Prospects of economic sanctions against South Africa, and supply hiccups there, fueled a steady rise in the past month.

Now, worries about renewed global inflation and the health of the world banking system are also being cited as reasons why investors are seeking security in precious metals.


Westdeutsche Landesbank of West Germany predicted that the current recovery in oil prices and the weakness of the dollar could help push gold to $450 by the end of the year. Higher energy prices are expected to feed inflation.

Gold closed Wednesday in London at $405 an ounce, $11.75 above the previous level but slightly down from the morning fix of $407.50--its highest level since September, 1983. The price of gold is “fixed” twice a day by the five London bullion houses, which set the price by matching bids and offers.

Platinum, which has been leading the precious metals higher over the last few weeks, gained $2.10 to $653.40 an ounce. The metal retreated from strong gains earlier in the morning. Even silver, burdened by massive oversupply, rose about 25 cents to $5.40 an ounce.

The falloff from morning highs had been expected by professional traders, who buy and sell for short-term gains. Earlier Wednesday, they said they were nervous that profit taking might develop and happily sold to meet any fresh demand.

In New York, gold was quoted at $403.50 an ounce at 4 p.m. EDT at Republic National Bank in New York, down $2 from Tuesday’s late bid.

The price rises over the last few days were a continuation of a rally that has lasted several months, led by the political turmoil in South Africa that traders feared could disrupt supplies of the metals. South Africa supplies about 80% of the West’s platinum and 60% of its gold.

Lower interest rates, which make precious metals a more attractive investment, have also helped to increase demand.

Investors had virtually abandoned gold after it peaked in January, 1980, at $852, when inflation in the United States was still in double digits.


Now, the fall in U.S. interest rates, orchestrated to promote economic growth, is being seen as risking renewed inflation.

Bank Julius Baer in Zurich, which had long advised against gold, even as “insurance,” recently recommended it for 5% of an investor’s portfolio. Credit Suisse, which had suggested 5%, just increased its recommendation to 10%.