Gold regains favour as the greenback extends declines
Gold prices rose to a seven-year high yesterday as institutional funds dumped the weakening US dollar in favour of the precious metal.
Spot gold rose 1.22 per cent in Asia trading to hit a seven-year high of US$389.50 an ounce. Gold has risen 7 per cent over the past month, while the US dollar has weakened 5.6 per cent against the euro.
Gold dealers said yesterday's rally had been fuelled by the Organisation of Petroleum Exporting Countries surprise cut in oil output on Wednesday.
They said the cut would trigger higher energy costs for corporates and would undermine economic growth, leading to more interest in gold due to its defensive nature.
Delta Asia Financial Group gold dealer Jacque Yau said a higher oil price would mean more revenue for Middle Eastern countries, which bought and held gold in reserve, and would boost demand for the metal.
Continued weakness in the US dollar would also make gold look cheaper to European investors, especially when its price was expected to rise, he said.
'We are eyeing the gold to hit US$400 an ounce by the end of this year,' Mr Yau said.
Merrill Lynch Investment Managers director Evy Hambro also believed gold's future price would be well supported in light of falling mine production and an increase in demand.
He said investors should take gold, instead of cash, as a buffer for their portfolios.