Gold on glittering form

Gold has proved to be one of commodities' brightest stars of late, hitting a series of record highs in recent weeks as a weak dollar encourages investors to pile into the precious metal. 
 
Its latest push saw it touch $1,093 an ounce on Wednesday morning, driven by the sale of 200 tonnes of gold from the International Monetary Fund to India Central Bank.
 
Analysts believe this could pave the way for further increases.
 
Eugen Weinbeg, head of commodities research at Commerzbank, commented: "The deal provided a sign to institutional investors that the price of gold is acceptable even for central banks, whereas before investors feared it was inflated."
 
Weinberg says it is likely that the price would exceed $1,100 an ounce before long. When that happens, the market will become hounded by impulsive, speculative buying, sending the prices even higher, he believes. 
 
John Meyer, analyst at Fairfax, said speculation is rife that at least one other central bank may be negotiating to buy gold from IMF and there is the potential for central banks to compete against one another for the remaining 203 tonnes of gold which the IMF has earmarked for sale.
 
Even before this development, buzz surrounding prices in excess of $1,100 had dominated the market. The London Bullion Market Association headed up the forecasts, with a bullish price of $1,181 an ounce, indicating that the market believes that the gold surge is set to stay.
 
Demand, although not outstanding, has seen an improvement in the last month as key festivals in India boosted jewellery sales, and much of the demand currently seizing the market is emerging from Asia.
 
Some traders are looking for a central Asian bank or East Asian bank to buy IMF's next lot with Weinburg adding that China would be a likely next bet.
 
However, the bigger driving force is undoubtedly the weak US dollar. As the greenback shows little fight against the major currencies, investors have been turning their attention to the precious metal as a safe haven against currency investments.
 
Suki Cooper of Barclays Capital said: "Given the strong technical picture and our expectations for the dollar to weaken further, gold prices look set to retain their gains and venture into unchartered territory."
 
Although global economies are widely believed to be recovering, concerns of inflation have also rippled through the market. Despite little evidence at present, the current economic climate is often compared with that of the 1970s when twin deficits and a loss of faith in the US currency led to inflation.
 
Charles Gibson, gold analyst at Edison Investment Research, takes a more cautious approach to where gold could go, but nevertheless believes that it will rise in the long run: "My thoughts on gold are that it can go higher from here. With economies still facing deflationary headwinds, we see gold as being vulnerable to a short-term pull-back in price.
 
"However, given the likelihood of negative real interest rates in the US in the near future as inflation recovers -on account of the oil price and quantitative easing - and growth remaining weak, we believe that the general environment remains supportive for the gold price."
 
The mining sector was benefitting from the record high prices. Randgold Resources (RRS) enjoyed a rise of 5%, while Fresnillo (FRES) gained almost 6%.