LONDON - Gold steadied on Thursday after the previous day's surge to nine-month highs and analysts expect stronger oil prices and world security worries to push prices higher over the coming days.
Spot gold was at $677.90/678.60 an ounce, compared with $678.90/679.60 late in New York on Wednesday, when the precious metal jumped more than 3 percent to $682.10, the highest since May 19 last year.
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Gold has climbed about 12 percent since hitting a two-month low of $601.70 on January 5 and is now within $60 of the 26-year high of $730 reached on May 11 last year.
"The underlying factors are ... geopolitical tensions, expectations of a weaker dollar and a generally strong appetite for commodities," said Frederic Panizzutti, senior vice-president at MKS Finance.
Panizzutti said gold might be on the way to establishing a new trading range between $670 and $700.
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Analysts said tensions between Iran and the United Nations boosted gold, seen as a haven when security risks are rising.
Iran vowed on Wednesday to press on with its nuclear fuel programme, ignoring a U.N. deadline to freeze uranium enrichment or face broader sanctions, but offered to guarantee it would not try to develop atomic weapons.
Expectations that the dollar would fall against the euro and the yen over the coming months were also supporting gold prices.
Gold often moves in the opposite direction to the U.S. currency, which when it falls makes dollar-denominated assets cheaper and more attractive for holders of other currencies.
DEFIANCE
Gold's allure as a hedge against inflation also grew after a surprisingly big rise in January consumer prices in the United States and news that Federal Reserve officials were uncertain that inflation was firmly on a downward path.
"The Iran news, higher oil prices and an avalanche of buying pushed gold up," a London-based trader said. "This is a pause, It's going to $700 and maybe even $730 in the next few months."
Crude oil prices were hovering around $60 a barrel. The jump on Thursday was sparked by worries about supplies after news that a pipeline carrying gasoline and diesel to the densely populated U.S. Northeast had shut down because of a spill.
"A bounce in the oil market, higher than expected inflation data and Iran's ongoing defiance to halt its uranium enrichment programme on the day of the UN deadline ... triggered a surge," TheBullionDesk.com said in a research note.
Evidence that gold 's gains were becoming entrenched came from the price of the precious metal in other currencies such as the Australian dollar and the euro.
An ounce of gold would cost investors A$860 now compared with A$780 on January 5.
"This is a gold story," Panizzutti said. "We have been in a bull trend for a couple of years."
Technical analysts saw initial price resistance at $688.50, the high from May 19 last year, followed by the psychological $700.
Platinum slipped to $1,219/1,224 an ounce from an earlier three month high of $1,226 and $1,225/1,229 late in New York on Wednesday.
"The (recent) strike action has again served as a reminder of the fine supply/demand balance within the platinum market," TheBullionDesk.com said, referring to recent industrial unrest in South Africa.
Palladium was firm at $342/346 an ounce from $340/344 on Wednesday and silver was softer at $14.21/14.26 an ounce from $14.23/14.28.
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Why gold could skyrocket in 2007. Two best ways to cash in.
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Protect yourself from rising inflation. The Fed won`t do it for you!
