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SCMP Reporter

Gold stormed past the psychological mark of US$300 an ounce yesterday as improving fundamentals, the Enron accounting scandal and Japan's economic woes sparked a buying frenzy in the safe-haven investment.

Hong Kong investors were in the thick of the action as the yellow metal, which has been in a bear market for two decades, jumped from a bid-ask spread of US$299 to US$300 in New York to close in Hong Kong at a two-year high of US$305.75 to US$306.75.

'There's a whole range of reasons. Gold is looking incredibly positive at the moment,' said Evy Hambro, a senior manager at Merrill Lynch Investment Managers.

Hong Kong investors switched from playing foreign exchange markets to gold after the metal shot up almost 10 per cent since January 24, lifting its level of volatility.

Tanrich Financial Holdings senior analyst Steve Cheung said: 'They want to look for something that is moving to have more opportunity to make a profit.'

The spike in prices was likely to trigger an inflow of gold to the SAR smuggled in by hoarders from China and Cambodia looking to cash in gains with city traders, analysts said.

Driving gold prices higher are investor worries about holding paper assets. The widening Enron scandal has called into question investments in securities in the United States, a supposed bastion of accounting probity.

'Three hundred [dollars an ounce] is a great number to break through. People are wondering what else is going to come out of the woodwork after Enron,' said Roger Chaplin, a mining analyst at Canaccord Capital in London.

'Gold is the only monetary asset that is nobody else's liability.'

With interest rates at 40-year lows, the comparative attraction of US Government bonds as a safe investment has declined.

Much of the gold buying has come from Japan, where banks are on the brink of insolvency yet depositors face the partial removal of government guarantees for their money in April.

Gold hit a three-year high in yen terms yesterday on the Tokyo Commodity Exchange (Tocom) at 1,319 yen, Reuters reported. Tocom was so swamped with gold buying orders on Wednesday that it exceeded the central computer's capacity, causing delays in trading.

'The Japanese have been big buyers of gold for the past quarter,' said Tony Dobra, a director at gold market-maker ScotiaMocatta.

'Particularly after what they have seen in Argentina, people are taking their cash out of the bank.'

The Government froze bank accounts in Argentina before devaluing the currency, leaving depositors powerless to protect their nest-eggs.

The supply side of the equation is also turning around with low interest rates nudging mining companies to reduce hedging on future production, a tactic which has been depressing gold prices for a decade, Mr Hambro said.

In a major turning point, South African giant AngloGold, previously a leading advocate of hedging, announced on Monday that it would cut back its hedging book by 4.5 million ounces, or 25 per cent.

'Supply and demand starts to look incredibly positive,' Mr Hambro said. 'We are seeing a 5 per cent to 10 per cent decline in supply over the next three years.'



Gold breaks US$300 as local investors join buying frenzy