Gold Climbs to Record, Oil, Grains Advance as Dollar Weakens

Gold advanced to a record and energy, metals and agricultural commodities rose as the dollar weakened and investors bought raw materials as a hedge against inflation.

Gold, copper and nickel are off to the best start since at least 1980. Crude oil gained, after reaching a record $100 last week, before a U.S. report that may show inventories fell for an eighth week. Corn climbed to an 11-year high as index managers increased the proportion of grains held in their funds.

The U.S. dollar is weakening and oil has picked back up, said David Thurtell, a metals analyst at BNP Paribas SA in London. There are a lot of supportive reasons to buy and not many reasons to sell.

Gold for immediate delivery rose as much as $18.52, or 2.2 percent, to $876.67 an ounce in London, exceeding the previous record of $868.89 set Jan. 3. The metal traded at $874 as of 3:06 p.m. in London. Gold for February delivery rose as much as $17.40, or 2 percent, to $879.40 an ounce on the Comex division of the New York Mercantile Exchange.

The metal last reached an all-time high in New York in 1980, when the dollar was weakening, oil prices were rising and the U.S. and Iran were at loggerheads.

U.S. warships were confronted by Iranian fast boats in the Straits of Hormuz on Jan. 6, the U.S. Defense Department said yesterday. The straits are the sea route for about a quarter of the world's oil. The dollar fell today against 15 of 16 major currencies.

The geopolitical situation is having an impact, Mario Innecco, a futures broker at MF Global Ltd. in London, said by phone.

Dollar Weakens

Crude for February delivery was up $1.99, or 2.1 percent, at $97.08 a barrel in electronic trading on the New York Mercantile Exchange. Corn for March delivery rose 4.75 cents, or 1 percent, to $4.71 a bushel in after-hours electronic trading on the Chicago Board of Trade, the highest since June 1996.

Gold advanced 31 percent last year, the biggest gain since 1979, when U.S. inflation was more than 13 percent. U.S. consumer prices increased 0.8 percent in November, the most in more than two years. Inflation in the 13-nation euro region accelerated to 3.1 percent in November, the fastest since 2001, according to Eurostat.

We remain bullish longer-term due to lower interest-rate expectations, oil-related inflation and the current geo- political climate, James Moore, a precious metals analyst with TheBullionDesk.com, wrote today in an e-mail.

Alternative Investment

Investors are also buying gold as an alternative investment after the Standard & Poor's 500 Index had its worst start to a year since 2000.

Hedge-fund managers and other large speculators increased their net-long positions in New York gold futures in the week ended Jan. 1, according to U.S. Commodity Futures Trading Commission data.

Gold should continue to gain in value, aided by stagnating mine output, mounting demand from investors and central banks, and its close link to the dollar, Commerzbank AG analysts based in Frankfurt wrote in a report today.

Speculative long positions, or bets prices will rise, outnumbered short positions by 199,438 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- long positions rose by 15,063 contracts, or 8 percent, from a week earlier.

$800 Average

Among other precious metals, silver for immediate delivery rose 41 cents, or 2.7 percent, to $15.555 an ounce. The metal advanced 15 percent last year, for a seventh consecutive annual advance.

Platinum for immediate delivery in London climbed $19, or 1.3 percent, to $1,542 an ounce. The metal reached a record $1,555.25 on Jan. 4. Palladium rose $2.75 to $372.75 an ounce.

Platinum jumped 34 percent last year, spurred by strikes and accidents at mines in top producer South Africa, which curbed production.

Gold will probably average $800 an ounce this year, compared with $696 last year, according to the median estimate of 37 traders, analysts and investors surveyed by Bloomberg News last month. Gold was the second-best performing metal after lead on the UBS Bloomberg Constant Maturity Commodity Index last year. The index of 26 commodities climbed 22 percent.

Ross Norman, director of London-based TheBullionDesk.com and a former trader of physical bullion, forecast in a Jan. 2 interview that gold may rise well above $1,000 an ounce this year, with a price of $1,200 not out of the question.

Goldman Sachs

Goldman Sachs International Group Inc. economist James Gutman, who is tied as the most-accurate analyst in the London Bullion Market Association's 2007 gold-price forecast, wrote in a Dec. 11 report that gold will drop to $790 in six months and $750 in 12 months.

As the U.S. dollar gains strength once again, the price of gold will, in turn, likely decline, he wrote in the report. The bank recommended selling December 2008 gold futures.

Stagnating production of the metal may buoy prices. Global output fell to a 10-year low of 2,477 tons in 2006, according to the London-based research company GFMS Ltd. Supply from South Africa declined 7.5 percent to the lowest since 1922 as companies were forced to dig deeper and pay workers more.

Gold rose to $873.25 an ounce in the morning fixing in London from $859.25 at the previous afternoon fixing. The fixing is conducted by telephone twice a day, at 10:30 a.m. and 3 p.m., by five banks: Deutsche Bank AG, HSBC Holdings Ltd., Bank of Nova Scotia, Societe Generale SA and Barclays Plc.

The Shanghai Futures Exchange, China's biggest commodity bourse by value, set a reference price equivalent to 209.99 yuan a gram ($898 an ounce) for the gold futures contracts for delivery from June to December that start trading tomorrow, the exchange said in a notice posted on its Web site today.