Gold, platinum hit record highs, more upside seen

Gold bars are displayed at South Africa's Rand Refinery in Germiston in this May 30, 2006 file photo. Gold and platinum soared to historic highs on Thursday as speculators and investors snapped them up amid strong oil prices and expectations for further U.S. interest rate cuts, analysts said.

LONDON (Reuters) - Gold and platinum soared to historic highs on Thursday as speculators and investors snapped them up amid strong oil prices and expectations for further U.S. interest rate cuts, analysts said.

Gold's allure as a hedge against inflation and a safe-haven asset got a boost as oil briefly rose to a lifetime high above $100 a barrel and the dollar tumbled.

"Even here, I will buy gold. I don't think the upside is finished yet. I think $900 is very real and there is nothing to suggest that it wouldn't go higher than that," said Peter Hillyard, head of metals sales at ANZ Investment Bank.

"The dollar continues to be important, but is not sufficient in itself to drive gold. It needs other factors, such as higher oil prices and the geopolitical situation. As the year develops, the situation in Pakistan is going to become complex."

Spot gold rose as high as $869.05 an ounce and was quoted at $862.90/863.60 in New York's at 2:15 p.m. EST (1915 GMT), up from $855.70/856.50 late in New York on Wednesday.

The price of gold jumped more than 30 percent in 2007, its biggest annual gain since 1979.

The most-active gold contract for February delivery settled up $9.10, or 1.1 percent, at $869.10 an ounce on the COMEX metals division of the New York Mercantile Exchange. It set a fresh contract high of $872.90.

The dollar fell against the euro on Thursday, though it was off session lows after an employment report eased fears about U.S. payrolls data due to be released on Friday.

But analysts said the outlook for the dollar was still grim, especially after Wednesday, when it posted its biggest daily decline since May 2006.

"With the dollar under pressure once again, and new year fund allocations being made, it is not surprising that a range of commodities has started 2008 very strongly," said Tom Kendall, metals strategist at Mitsubishi Corp.

"We do not see any change to the bullish drivers for gold in the short term," he said.

A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

U.S. crude oil futures ended 44 cents lower at $99.18 a barrel, despite a government report showing U.S. crude inventories fell for the seventh week in a row. [ID:nSP45898] Earlier, oil briefly breached above $100 a barrel.

"We are in the middle of winter, and we have $100 crude. Where are we going to be when we get to the driving season? It's certainly started to get on people's mind," said Frank McGhee, head precious metals trader with Integrated Brokerage Services in Chicago.

Gold was fixed at a record high of $850 an ounce in January 1980 as a surge in inflation linked to strong oil prices, Soviet intervention in Afghanistan and the impact of the Iranian revolution sparked buying by investors.

After adjusting for inflation, the 1980 record price was $2,079 an ounce at 2006 prices, while the real average price in 1980 was $1,503, metals consultancy GFMS Ltd said.

UPSIDE MOMENTUM

Technical analysts said gold's bull run had momentum to set new highs this year, with prices seen heading towards $1,000 an ounce after hitting historic highs.

Some analysts advised caution, however.

"We are concerned that gold is vulnerable to a nasty correction. After all, we consider the metal to be $100 to $150 above near-term fundamental value," said John Reade, head of metals strategy at UBS Investment Bank.

"But this may not matter in the near term, following a decisive break of the previous all-time high."

UBS raised it short-term gold forecast to $900 from $750.

Platinum rose to $1,550 an ounce and was at $1,550/1,555, versus $1,539/1,544 late in New York on Wednesday.

Silver rose to $15.39 an ounce, its highest in nearly two months, before easing to $15.33/15.38, against $15.17/15.22 late on Wednesday.

Palladium fell to $369/373 from its previous finish of $373/378.

(Additional reporting by Frank Tang in New York and Lewa Pardomuan in Singapore)