GOLD Hits New 25 Year Peak at $556.50

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Gold scales new 25-year peak
Platinum also jumps to 26-year high on speculative buying and supply concerns
January 13, 2006: 12:55 PM EST

LONDON (Reuters) - Gold awoke from a week-long slumber to hit a new 25-year peak on Friday as investors actively bought metals again, pushing platinum to its highest level in nearly 26 years.

Base metals were also buoyant, with lead, aluminum and zinc all scoring fresh multi-year or all-time highs.

After starting the week setting new highs, gold traded quietly until late on Friday afternoon when it suddenly jumped 1.5 percent to score a fresh peak of $556.50.

"It was all over the place. Very, very choppy," one trader said, adding that buying ahead of a long weekend in the U.S., where markets are shut on Monday for Martin Luther King Day, could have fueled the move.

Platinum, used mainly to clean auto exhaust emissions, rose largely on speculative buying, although worries about supply are also a support to the market, dealers said.

"The recent move above $1,000 is mostly driven by speculative buying," Barclays Capital said in a report.

The investment bank recently named the metal as its preferred precious metal for 2006 and said it had potential to push above $1,100 during the course of the year.

Platinum demand has now outstripped supply for eight straight years, thanks to robust consumption by car manufacturers in Europe where diesel engines continue to gain market share. Until recently, only platinum could be used for both diesel and gasoline catalysts.

Platinum was at $1,031/1,035 by 1630 GMT, just off its peak of $1,033 -- its highest since March 1980, when it touched $1,047.50. That compared with $1,022.50 in the U.S. market late on Thursday.

Palladium rose to $281 from $271.

"The strength in platinum prices reflects two key factors: the broad enthusiasm for commodities by investors and speculators, and the continued tight industry fundamentals," said Alan Williamson, analyst at HSBC Bank.

Platinum demand of about 6.71 million ounces in 2005 outpaced supply of 6.59 million, mainly because of lower output from South Africa, the world's top producer.

Gold roars back to life
The market has been attracting ever more money since the start of the year, as more funds diversify their portfolios into commodities for better returns compared with stocks, bonds and currencies.

Gold surged 18 percent in 2005 while silver was up by 30 percent from the previous year.

Spot gold was at $555.50 an ounce by 1635 GMT, sharply higher than New York's previous $548.15.

Silver was hot on gold's heels, gaining just over two percent to $9.20 from $9.00.

"I hear there is some quite good buying in investment products and we are seeing very good demand for bars here," one German trader said.

Investor interest in exchange-traded gold funds (ETFs) has soared since the end of 2005. These products, traded on some of the world's major stock exchanges, give investors a share of a bar of gold.

Analysts estimate the five ETFs now hold some 384 tons of gold -- equivalent to the gold reserves of Russia.

"Gold is more and more becoming an insurance policy against any type of disruptive risk and most portfolio managers believe that gold is an asset which should not be missed in their portfolios," Frederic Panizzutti, senior vice-president at MKS, said in the firm's outlook report for 2006.

© 2006 Reuters News Service
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Gold scales new 25-year peak (January 13, 2006 12:55pm)