Gold Hits 18-Month High as Dollar Slides

Gold hit a new 18-month high of $1,025.10 an ounce in Europe on Tuesday as the dollar slipped against a basket of currencies, boosting interest in the metal as an alternative asset.

The dollar fell after a media report, later denied, that Gulf Arab states were in talks to abandon the dollar in oil trade in favor of a currency basket.

A small seasonal increase in demand for physical gold is also supporting prices, traders said.

Spot gold [US@GC.1  1030.5    12.70  (+1.25%)] was bid at $1,022.30 an ounce against $1,016.65 late in New York on Monday.

U.S. gold futures also hit an 18-month high. Gold for December delivery was up $8.20, or 0.8 percent, at $1,026.00 an ounce at 6.11 am New York time on the COMEX division of the New York Mercantile Exchange. The contract earlier hit a peak of $1,029.00 an ounce.

Peter Fertig, a consultant at Quantitative Commodity Research, said the final quarter was typically strong for gold, due to rising jewelry demand — a weaker than usual factor this year — and as the dollar is seasonally soft.

"That is the major driver of investment demand," he said. "The speculation, even if it has been denied, that Gulf states would like to peg oil prices to a currency basket and not the U.S. dollar alone has been a positive factor for gold, while weakening the dollar against other major currencies."

The dollar slipped sharply in Asian trade after UK newspaper the Independent said Gulf Arab states were in secret discussions to end the use of dollars in oil trading. The newspaper said the states were in talks with Russia, China, Japan and France to replace the unit with a basket of currencies.

The dollar pared losses after the report was denied by Saudi and Russian authorities, but stayed weak.

Dollar weakness, if sustained, could push gold prices to new all-time highs above $1,030.80, the peak they hit in March last year, analysts said.

"The ability of gold to climb back over $1,000 is, in our opinion, impressive," HSBC analyst Jim Steel said in a note. "If the dollar remains subject to gradual erosion and commodity prices remain firm.... then gold is likely to remain well-bid and may challenge all-time highs."

Commodities Climb 

Among other commodities, oil and base metals climbed on the back of the U.S. currency weakness, which makes dollar-priced assets cheaper for holders of other currencies.

Strength in other commodities is often reflected in gold. Physical demand for the metal also trickled through. The largest gold exchange-traded fund, New York's SPDR Gold Trust, said its holdings rose 1.5 tons on Monday.

Traders say they are also seeing rising demand in major gold consumer India ahead of the Diwali festival on Oct. 19.

Mark Cutifani, chief executive of AngloGold Ashanti, said he sees gold prices at $950-1,100 an ounce in the next 12 months, and they could break $1,100 if the U.S. economy continues to dip and investment demand rises.

The yellow metal's gains helped lift silver to a near two-week high of $16.92 an ounce in early trade as investors bought it as a cheaper proxy for gold. Silver was later at $16.95 an ounce against $16.59.

Platinum and palladium, the precious metals widely used in autocatalyst manufacturing, also benefited from gold's rise, as well as the better appetite for risk demonstrated by rising equity markets. Platinum was at $1,303.50 an ounce against $1,293 while palladium was at $297.50 against $298.50.

- Via CNBC