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Gold hits 16-month high, focus on US data

Filed on September 7, 2007

LONDON - Gold hit a 16-month high just below $700 on Friday, boosted by strong oil prices, healthy physical demand and safe-haven buying.

The metal bounced back after falling in Asia on profit-taking as bullish technical signals and tensions in the Middle East also encouraged investment funds to increase buying.

Gold traded as high as $698.10 an ounce and was quoted at $698.10/698.90 at 1106 GMT after falling to $691.90 overnight, against a 26-year high of $730 in 2006 and New York’s late quote of $695.70/696.30 on Thursday.

Gold is up about 9 percent since falling to a seven-week low of $641.10 in August.

“If it breaks convincingly through $700 then I would say that we will be looking to move back up to $730 again,” said Jeremy East, head of metals trading at Standard Chartered Bank.

The price moves appeared to be driven by funds and investors and it was easy to get carried away with the rally, East said, but added he was cautiously optimistic about gold which rose to around these levels twice this year but failed to retain gains.

Investors kept an eye on the dollar, which hovered near a one-month low against a basket of major currencies as investors looked to US jobs data at 1230 GMT for signs of whether the subprime mortgage crisis is hurting the real economy.

Any signs of weakness would reinforce expectations for the US Federal Reserve to cut interest rates by as much as a half-point this month.

A lower rate often tends to weaken the currency and makes dollar-priced gold cheaper for other currency holders. The metal is also generally seen as a hedge against oil-led inflation.

Oil held near $76 on Friday, within $3 of a record high, as renewed tension in the Middle East compounded supply worries after further declines in US fuel inventories.

Adding to supply worries was tension in the Middle East, the source of nearly a third of world oil, after Syria accused Israel of bombing its territory and warned it could respond.

“The trend for gold is clearly very strong, but I’m worried about the speed. We could see some more profit-taking before testing $700,” said Tatsuo Kageyama, analyst at Kanetsu Asset Management, referring to gold.

“The subprime problems have shaken stock, currency and credit markets ... it seems investors are treating gold as a last resort of investment. We are also seeing strong inflows into gold ETFs (exchange-traded funds).”

The latest data showed that gold held in New York-listed StreetTRACKS Gold Shares, the world’s largest gold-backed ETF, reached a new record high of 542.35 tonnes, up 26.91 tonnes or 5 percent from the start of the month.

In other metals, platinum rose to a one-month high of $1,287 an ounce and was last quoted at $1,285/1,289, against $1,284.50/1,291.50 in New York.

Palladium was flat at $333/337 an ounce, while silver was at $12.57/12.61 an ounce, up 15 cents.

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