Gold soars to approach $900

Gold surged to a record high just under $900 an ounce on Wednesday, powered by heavy buying by investment funds and helped by rising oil prices and a strong debut for Shanghai gold futures.

Platinum also set an all-time high on positive fundamentals and tracking gold's rally. Silver touched two-month highs and was not far from its highest level in 27 years.

Spot gold jumped to $891.40 an ounce, surpassing the previous record of $881.10 reached on Tuesday. It was quoted at $885.0/885.80 at 11.33am GMT, compared with $878.10/878.90 in New York late on Tuesday.

"This is an extension of the ongoing rally with very strong underlying interest in buying gold across geographic locations," said David Holmes, director of precious metals sales at Dresdner Kleinwort Investment bank.

"Clearly, the jewellery demand is suffering as a consequence of the high price, but it's being more than offset by broad-based global investor demand in gold. We are very much trading on momentum and gold is currently self advertising.

"I perceive that it's possible for gold to continue making new highs. $900 is clearly within reach and given its recent momentum it may continue making progress towards the psychologically important $1,000 level," he said.

The market gained momentum after the key Japanese gold futures price hit its highest level since March 1984 and gold futures were launched on the Shanghai exchange.

The contract surged to nearly $1,000 an ounce on Wednesday, as enthusiastic new bullion bulls bid a hefty premium over their global peers.

"The launch of Shanghai gold is positive for the gold market as a whole. Participation of Chinese players would help gold become more active during Asian time," said Hiroyuki Kikukawa, an analyst at IDO Securities in Tokyo.

BULLION MARKETS GAIN

In other bullion markets, US gold futures rose in line with the spot price. The most active February contract was up $7.00 from New York at $887.30.

The key gold futures contract for December 2008 delivery on the Tokyo Commodity Exchange (TOCOM) finished at 3,134 yen a gram, up 37 yen or 1.2 per cent from Tuesday. It had reached an intraday high 3,173 yen, the highest for a benchmark since March 1984.

"It looks like the gold market wants to see and test the $900 level. I could imagine that there will be some long liquidation by then at the latest," said Alexander Zumpfe, a metals trader at Germany's Heraeus.

"Overall, the environment for the metal should continue to be supportive as long as economic worries persist and oil maintains its bullish tone."

Spot gold rose more than 30 per cent in 2007, its biggest annual gain since 1979. Traders said gold was becoming more appealing as the market sought higher returns with US shares slumping and prospects for the US economy deteriorating.

Investors were also convinced to buy gold due to lingering tensions in the Middle East, rising energy prices and weakness in the dollar.

Oil rose above $97 a barrel as further declines in US crude stocks and the potential for more disruptions to Nigerian supply offset concerns over the US economy.

Platinum rose as high as $1,560 an ounce and was last quoted at $1,559/1,564, versus $1,547/$1,552 late in New York.

Palladium was flat at $376/379 an ounce, while silver rose to $16.14 an ounce before falling to $15.94/15.99 , against $15.78/15.83 in New York. (Reuters)