The weak US dollar and fears about inflation returning lured investors back into safe-haven gold, driving up the price of the yellow metal close to record highs.
The price of gold hovered around US$982 an ounce in late Asian trading – its highest since February this year. Gold had earlier risen as high as US$990, but retreated as the greenback rebounded from this year’s low.
At these levels, gold is within striking distance of its all-time high of US$1,003.20 set in March 2008.
Analysts said hard assets like gold were traditionally seen as a hedge against rising prices because they generally retain their values.
Gold prices have risen 10% in the past month while the US dollar has dropped 7% in the same period.
“There is no reward for holding cash unless you are prepared to wait for a very, very long time to get your money back,’’ AIMS Asset Management managing director David Crichton Watt said.
The Kuala Lumpur-based company manages the Phoenix Gold Fund, which invests in gold bullion and mining stocks worldwide.
Prices of gold and other commodities, from crude oil to cotton, have surged in the past two months on optimism that the world economy will recover quickly and demand for goods will rise.
The optimism was fuelled by the unprecedented move by governments around the world to slash interest rates and unveil trillions of dollars worth of spending packages.
The US, British and Japanese governments went a step further by adopting “quantitative easing” policy, meaning printing money.
Flush with freshly minted money and cheap funds, investors went on a buying spree in the past two months as they scooped up battered stocks and commodities from metals to grains.
Two weeks ago, Citigroup said in a report that Asia’s stock market rally was so intense that it took only 10 weeks for prices to recover from their lows compared with 24 months previously.
The renewed appetite for risk also spilled over into the commodities market, with crude oil leading the charge. The price of crude oil doubled from this year’s low of below US$34 a barrel in mid-March to US$68 yesterday.
During the same period, the US dollar index tumbled 18% against a basket of six major currencies.
Gold typically moves inversely to the currency index, which on Tuesday fell to the lowest level since Dec 18.
