- The Washington Times - Tuesday, May 9, 2006

Iran’s actions, dollar-dump speculation cited


Gold surged above $700 an ounce in New York for the first time since October 1980 and platinum reached a record as tensions increased over Iran’s nuclear-research program.

The U.S. government said a letter from Iran’s president hasn’t reduced efforts to halt the Islamic republic’s nuclear research.

Gold also gained on speculation that central banks will sell their dollar reserves and buy gold. Some of China’s economists are urging the country to quadruple its gold reserves to 2,500 tons from 600 tons, the Reuters news agency said, citing an official industry newspaper. China’s reserves have remained little changed since December 2002.

Geopolitical turmoil can spur investors to buy precious metals as a store of value. Gold in New York reached a record $873 in January 1980 after a 1979 Iranian revolution slashed oil exports and spurred 12 percent inflation in the U.S.

“No one is buying Iran’s overtures,” said Frank McGhee, chief metals trader at Integrated Brokerage Services. “This is purely a geopolitical move for gold. We’ve been here before. The difference is that this time, there are nukes involved.”

Gold futures for June delivery rose $21.60, or 3.2 percent, to $701.50 an ounce on the Comex division of the New York Mercantile Exchange, the highest close since Sept. 25, 1980. Prices earlier reached $702.20 and are up 64 percent in the past year.

Gold on the Comex has gained 27 percent since Jan. 9, when Iran said it had resumed nuclear research.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

The gain in gold was the most since Sept. 14, 2001, when the market resumed trading after the September 11 terrorist attacks.

Mining shares also rallied. The Philadelphia Stock Exchange Gold & Silver Index of 16 companies rose 4.3 percentage points to 167.40, the biggest gain since Jan. 3. The index has jumped 95 percent in the past 12 months.

Platinum for July delivery rose $37.40, or 3.1 percent, to $1,239.30 an ounce on the Comex, after reaching a record $1,243. In London, platinum for immediate delivery rose $40 to $1,235.50 and were up 41 percent in the past 12 months.

“China wants to move away from U.S.-denominated assets,” said John Licata, chief investment strategist at Blue Phoenix., an energy and metals consultant. “This is good for gold as the dollar weakens.”

Gold may reach $850 this year, Mr. Licata said. He correctly predicted gold would reach $500 in 2005.

China has about 75 percent of its reserves in dollars, compared with about 1.3 percent in gold. South Africa and Russia have said they want to increase their gold reserves.

“It’s very possible that we could hit $1,000 soon,” said Frank Holmes, who manages $5.2 billion, including $1.5 billion in gold stocks such as Barrick Gold, at U.S. Global Investors. “Governments, such as China, are buying bullion. It’s like the way smart people buy insurance.”

Some analysts said China may have already moved to increase its gold reserves, contributing to the strength in gold prices in the past year.

Other analysts say if China increases its reserves too quickly, it would disrupt financial markets.

“If China really wanted to diversify its reserves with a significant percentage, they’d bring the market to $2,000,” said Christoph Eibl, head of commodities trading at Tiberius Asset Management AG in Zug, Switzerland. “There isn’t one central banker out there who wants to do that, as it will have a huge impact on the financial system.”

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