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Gold Hit $980 and Oil $103 a Barrel

Gold powers to record on oil, eyes $1,000

Reuters
February 29, 2008

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Gold powered to a new high near $980 an ounce on Friday after crude oil set an all-time high of above $103 a barrel, igniting inflation worries and another round of buying from investors and speculators.
Palladium jumped to its highest level in more than six years and silver hit a 27-year peak. Platinum rebounded from its lows but given the absence of new developments in South Africa’s supply problems, gains are likely to be capped.

Gold jumped as high as $975.90 an ounce, up from $968.90/969.70 late in New York on Thursday. Gold has gained more than 16 percent this year, and the next upside target pegged by dealers is $1,000.

Record high oil and expectations of more interest rate cuts in the United States add to inflation pressures, elevating gold’s appeal as a hedge against rising prices, while volatile stock markets have encouraged investors to shift some of their money into gold and other precious metals.

“The target is $1,000. I personally hope it will be $1,000 within a month,” said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo, adding that gold was likely be driven by movements in oil in coming weeks. Crude oil rallied to another record above $103 a barrel as Ecuador shut a key export pipeline and a fire hit a major European natural gas plant.

While oil is at a record price in inflation-adjusted as well as nominal terms, gold has lagged. According to analysts at GFMS gold’s inflation-adjusted record is $2,079 an ounce.

“Most of the funds are buying inflation hedges such as gold, silver and oil. It’s still a bull market, where hedge funds and banks buy precious metals,” said William Kwan, a dealer at Phillip Futures in Singapore.

“I think inflation is really getting out of hand. I am looking at $955 for support and resistance at $985,” said Kwan, who pegged upside target for silver at $20.

Silver rose as high as $19.92 an ounce, its highest in 27 years, up from $19.74/19.79 an ounce in New York.

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Oil Tops $103 For The First Time In History

AP
February 29, 2008

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Oil prices briefly surpassed $103 a barrel for the first time Friday as persistent weakness in the U.S. dollar and the prospect of lower interest rates attracted fresh money to the oil market.

Light, sweet crude for April delivery on the New York Mercantile Exchange jumped to a new trading record of $103.05 a barrel in electronic trading before slipping back to $102.02 a barrel, down 57 cents, by midday in Europe.

On Thursday, the contract jumped $2.95 to a record settlement price of $102.59 a barrel.

Prices were supported by comments Thursday from Federal Reserve Chairman Ben Bernanke, who said the American economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation.

Investors chose to see the comments as confirmation of their beliefs that the Fed will continue cutting interest rates to try to shore up the economy.

“It seems that further interest rate cuts, additional dollar weakness and more investment buying will anchor oil to higher prices,” energy risk management firm Cameron Hanover said in its daily report. “It can’t go on forever, but it looks like it can go on for a while.”

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Euro hits fresh high against dollar

Financial Times
February 29, 2008

The dollar hit another record low against the euro on Friday, as data continued to support the view that the European Central Bank will keep interest rates on hold for the foreseeable future.

Headline inflation in the eurozone stood at 3.2 per cent in January, tallying with earlier estimates and market expectations as food and energy prices leapt. Meanwhile, unemployment in the eurozone held at a record low of 7.1 per cent in January.

“With headline inflation running at a 14-year high and the lingering threat of second round effects, it is premature for the ECB to switch to an easing bias in their policy stance just yet,” said Martin van Vliet at ING.

While the ECB remained unlikely to cut eurozone interest rates at its next policy meeting on Thursday, markets were fully pricing in a cut of 50 basis points at the US Federal Reserve’s meeting on March 18.

“Markets are probably wisely bracing themselves for further monetary policy divergence between the US and eurozone over the next few months,” added Mr van Vliet.

The euro rose to a record high of $1.5238, before retreating to $1.5206, little changed on the session.

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