Gold Prices Hit Highest Level Since 1980 [ Yahoo / Business / AP ]

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Gold Prices Hit Highest Level Since 1980

By MADLEN READ, AP Business WriterTue May 9, 5:05 PM ET

Gold prices surged Tuesday above $700 an ounce — a level not reached since 1980 — as funds bought into the market, driven by weakness in the dollar, political tension in the Middle East and overall upward momentum in the commodities markets.

These persistent factors have been pushing gold prices to multi-decade records for months now. Gold has risen 40 percent since late November, when for the first time in two decades the most-active contract broke through $500 an ounce.

Surpassing $700 an ounce "is important, insofar as it reinforces the overall uptrend of the market. There are people looking for much, much higher," said Bernard Hunter, director of precious metals at Scotia Mocatta, a division of the Bank of Nova Scotia.

Hunter said prices will likely consolidate at this level, then once again start heading higher. Some market watchers are expecting gold to breach the $1,000-an-ounce mark.

June gold futures on the New York Mercantile Exchange rose to a peak of $702.20 an ounce Tuesday, before settling at $701.50 an ounce, up $21.60 on the day.

If gold does continue rising into the coming weeks, it will mark the first time the yellow metal has spent significant time trading above $700. The all-time record, set in January 1980, was $875 an ounce, but it was reached in a huge day-and-a-half surge, and then gold futures fell "back under $700 before you could blink an eye," said Peter Grandich, who writes the mining and metals markets commentary The Grandich Letter.

Now, "all the lights look green for gold ... From this point forward, after the excitement, we could see a correction. But it will only be a correction. It will not be the end of this run," Grandich said.

The main factors contributing to funds' recent interest in buying gold futures are geopolitical worries, mining hindrances, and a falling dollar, which typically encourages investors to turn to gold, considered a safer alternative to the U.S. currency.

"Surprisingly, the one factor that's really absent from this is normal physical demand," Hunter said. He noted that aside from small pockets of higher consumer demand for gold, such as during the Indian wedding season, demand has been fairly steady.

The euro rose as high as $1.2783 against the dollar Tuesday on a report showing increasing U.S. wholesale inventories and on the worry that the Federal Reserve will pause in raising interest rates after one more move, to 5 percent from 4.75 percent. Fifteen consecutive interest-rate hikes have been a boon for the dollar, and an end to that tightening campaign would make the U.S. currency less attractive to investors.

On the political front, Iran's president wrote Monday in a letter to President Bush that democracy had failed worldwide and lamented "an ever-increasing global hatred" of the U.S. government. Secretary of State Condoleezza Rice rejected the letter Tuesday, saying it didn't resolve questions about the country's nuclear program. Ongoing fears about how Iran — one of the world's biggest oil producers — might react to possible sanctions by the United Nations has been especially bullish for the energy markets, which in turn boosts metals.

Nymex crude rose 92 cents to settle at $70.69 a barrel Tuesday.

In terms of mining woes, Bolivia announced last week a plan to nationalize its natural gas industry and exert greater state control over all of its natural resources. This has fed concern that Bolivia and other South American countries could hamper supplies of gold and other metals to the market, Grandich said.

Other metals also rose as well Tuesday.

Platinum rose to a $1,243-an-ounce record, before settling at $1,239.30 an ounce, up $37.40 on the day.

Palladium also soared to a fresh high of $395 an ounce, ending the day at $394.90 an ounce, up $19.65.

Silver rose 69.5 cents to settle at $14.465 an ounce.

High gold prices also pulled mining stocks higher Tuesday. Shares of Barrick Gold Corp., the world's largest gold producer, rose 90 cents, or 2.6 percent, to close at $34.87 on the New York Stock Exchange. Shares of rival Newmont Mining Co. climbed rose $2.20, or 4 percent, to close at $57.93.

Gold futures broke through the $600-an-ounce level for the first time since 1980 on April 6.

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