Gold races past $600, copper hits $6,000
Tuesday April 11, 12:16 pm ET
By James Regan and Clare Black
SYDNEY/LONDON (Reuters) - Gold hit $600 an ounce for the first time since 1980 and copper stormed to a record of $6,001 a tonne on Tuesday as investment funds scrambled for alternatives to stocks, bonds and foreign exchange.
With oil surging through $69 a barrel and the dollar tipped for another bout of weakness, funds have flocked to gold and other commodities.
Gold (XAU=), which has gained 16 percent this year and 41 percent in the past 12 months, touched $604 an ounce -- its highest since December 1980 -- before easing to $597.30/598.10 by 1554 GMT.
"There's a lot of fund buying going on and new money flowing in to the sector," said Michael Widmer, analyst at Macquarie Investment Bank.
He attributed this new money to funds who invest in a basket of commodities, known as indexes, and also noted increased interest from pension funds. Gold accounts for some three percent weighted average of the various index funds.
Macquarie estimated that fund investment flows into commodities were now around $90 billion and could easily increase to $130-140 billion by the end of the year.
"The market is still benefiting from the availability of liquidity in global financial markets, particularly with interest rates still relatively low in the eurozone," Widmer said, adding that currency moves were also driving prices.
Inflation worries, Middle East tensions and uncertainties over the U.S. dollar's outlook also helped gold, which has doubled its price in the past four years, to climb further.
Silver rose to a new 23-year high of $13.01 an ounce.
And as investors also took shelter in base metals on supply worries, copper galloped to a record high, punching through to the virgin territory of $6,000 a tonne.
News that Grupo Mexico had declared force majeure due to strikes at its Mexican mines lent support to copper, taking its gains to more than 35 percent this year.
London Metal Exchange copper futures (MCU3) closed $60 higher at $5,970 a tonne, having earlier hit a record $6,001.
Barclays Capital said in a daily report that gold was more vulnerable to profit-taking and a "violent" correction should sentiment turn.
"Speculative buying activity in the copper market we argue is more sustained, supported by strategic investors, who are likely to stay committed for years rather than days, or even months," the bank said.
MORE RISES SEEN
Copper, used in construction and electronics, has risen more than four-fold from below $1,400 in November 2001 on strong demand and tight supply after years of under-investment in new mining projects.
Deutsche Bank said in a global commodity report issued on Tuesday that supply constraints, coupled with rising global industrial production and against a backdrop of low inventories, were having a major impact on price levels.
This had forced the bank to not only revise up its forecasts for cash prices, but also for those further ahead.
It hiked its base metals prices by a weighted average of 26 percent for 2007, 37 percent in 2008 and 32 percent in 2009, but nevertheless advised a more selective or actively-managed approach to commodity investment.
Rising prices boosted stocks in mining and metals firms. Britain's top share index slipped from an earlier 5-year high, but gains in the mining sector helped cushion the fall.
"The green light (for buying) is on for resource-related stocks, which benefit from higher prices in oil, gold and copper," said Tatsuyuki Kawasaki, director of the equities trading division at Kaneyama Securities.
Oil moved nearer its $70 a barrel record, fueled by a mix of investment fund money, threats to supply from OPEC producers Iran, Nigeria and Iraq and strong demand in the United States and China.
Brent crude (LCOc1) set a new high of $69.70 during the London morning, while U.S. crude (CLc1) swept to $69.45 and analysts said it was only a matter of time before August's record fell.
(Additional reporting by Jae Hur and Lewa Pardomuan in Singapore and Martin Hayes in London)
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