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Gold prices pull back from 28-year high on oil, dollar

LONDON — Gold pulled back from a 28-year high yesterday, retracing just before the key $800 mark after a fall in oil prices and a recovery in the dollar.

Analysts said a period of consolidation would be healthy for the market and provide a solid base for a march towards a record high of $850 an ounce hit in January 1980.

Simon Weeks, head of metals trading at Bank of Nova Scotia, said gold rose in early trade on a knee-jerk reaction after the U.S. Federal Reserve’s decision to cut rates, but later ran out of steam and there was not enough volume to justify high prices.

“Overall, I am sure it will happen but we just need to take a breather,” he said, referring to gold’s rise to $800. “With some people late to the party, I think that there are some longs to be squeezed out.”

Gold hit a peak of $799.30 an ounce, its highest since January 1980, before falling to $789.60/790.40 by 1507GMT, against $791.70/792.50 in New York late on Wednesday.

Oil fell more than $1 as investors cashed in on a new peak of $96 a barrel struck following a sharp fall in U.S. stocks and the U.S. Federal Reserve’s interest rate cut the previous day.

The euro dropped about half of one percent against the dollar to $1.4405 a day after it hit a record peak above $1.45 following the rate cut. The Fed said inflation risks were equal to the possibility of slower growth.

A firmer dollar makes gold costlier for other currency holders and often lowers bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

“Gold continues to defy gravity with frothy crude and a wilting dollar helping sentiment,” said John Reade, head of metals strategist at UBS Investment Bank.

“But barring a rapid adjustment by the fundamental gold market, the metal looks set for a correction, although the timing of this is as impossible to predict as ever.

”With $800 very close and $850 very much in traders’ gun sights, momentum may take us sharply higher in the near term, but this will only make the correction all the more devastating when it does occur,” he said in a daily research note.

After adjusting for inflation, gold’s lifetime high of $850 is equal to $2,079 an ounce at 2006 prices. Prices have jumped 25 per cent since the latest rally began in mid-August.

Inflation concerns

But analysts remained convinced that the metal would hit new highs in the medium term.

Philip Klapwijk, chairman of metals consultancy GFMS, said inflation worries and a weak dollar were likely to push gold towards the record high of $850 in the first half of next year.

“Inflation is beginning to become a bit more of a concern, particularly in the context of lower U.S. interest rates,” he told Reuters in an interview. December U.S. gold rose as high as $800.80 an ounce before falling $2.8 to $792.30, while October 2008 Tokyo gold futures gained 2.3 per cent to finish at ¥2,983. In news, AngloGold Ashanti, the world’s third biggest producer, reported flat third-quarter headline earnings per share after costs rose, undermining a rise in output. Randgold Resources Ltd posted a 9.8 per cent year-on-year fall in third-quarter net profit due to higher costs and a loss on hedge contracts, while DRDGOLD increased first quarter gold output in South Africa by 11 per cent to 89,157 ounces. Barrick Gold Corp its third-quarter profit fell 15 per cent as lower gold sales and rising costs offset higher gold prices.