(Recasts, updates with closing prices, market activity, changes
dateline to NEW YORK)
By Frank Tang
NEW YORK, Jan 10 (Reuters) - Gold set a record high near
$900 an ounce and silver surged to a 27-year peak on Thursday,
as funds poured money after comments by the Federal Reserve
Chairman Ben Bernanke triggered speculation of further rate
cuts and a dollar slide.
"The rate cut (speculation) has been driving the gold
market through its impact on the dollar. I expect more of the
same going forward," said Thomas Winmill, portfolio manager of
Midas Fund <MIDSX.O> in New York, which oversees $265 million
of assets under management.
Spot gold <XAU=> hit a record peak of $894.90, after falling
early to as low as $866 an ounce on profit taking. It was quoted
at $889.90/890.60 an ounce by New York's last quote at 2:15 p.m.
EST (1915 GMT), against $877.70/878.50 late in New York on
Wednesday.
Bernanke on Thursday said the U.S. central bank was ready
to act aggressively to counter a deep housing slump and credit
market strains that were putting economic growth at risk.
[]
A rate cut lowers the return of treasury bonds and other
fixed-income investments, making gold and stocks more
attractive.
Shortly after the release of Bernanke's comments, gold and
gold futures accelerated gains, as the dollar slid against
major currencies in anticipation of further rate cuts.
"At this particular point, it's all on anticipation of lower
U.S. interest rates," said Frank McGhee, head precious metals
trader of Integrated Brokerage Services in Chicago.
Bernanke's remarks were in contrast to those of his European
Central Bank counterpart, Jean-Claude Trichet. Trichet, citing
persistent inflation pressures, indicated further policy
tightening was likely in the euro zone, giving additional
impetus to the euro.
"The relevant things today are that the ECB said they are
going to be vigilant and tight, and Bernanke said that they are
ready to take significant action to support growth and help the
economy out," said Axel Merk, portfolio manager of Merk Hard
Currency Fund in Palo Alto, California, which manages $250
million of assets.
Recent grim U.S. manufacturing and employment data has
intensified the likelihood of a Fed rate cut later this month.
"I think people are realizing now that we are in a
recession, or if we are not in one, we are heading into one.
There is very little the Fed can do about it, but there is a lot
the Fed wants to do about it," Merk said.
Gold, which gained more than 30 percent in 2007, entered
the new year on a firm note, rising more than 7 percent on a
combination of bullish factors including a struggling dollar
and record high crude oil prices.
In other bullion markets, Shanghai gold futures <0#SHAU:>
fell 3.7 percent as some investors sold positions a day after
the contract rallied 6.3 percent at its debut. []
The key Tokyo gold futures contract for December 2008
delivery <0#JAU:> ended 17 yen per gram lower at 3,117 yen.
FED COULD DISAPPOINT
However, the failure of the Fed to lower rates to boost
growth could disappoint investors and backfire on gold prices,
fund managers said.
"It seems like the market is betting that there is a going
to be rate cut. I would say that the surprise factor going
forward would be that there will be a less-than- expected or no
rate cut, and that I think it would be adverse to gold,"
Winmill said.
In industry news, South Africa's gold output fell 12.7
percent in November from a year earlier, tightening supplies in
the world's top producer of the metal. []
Gold production has been on a downward slope in South
Africa, tumbling by over 50 percent over the past decade, as
high-grade mines run out of ore and firms grapple with more
difficult and high-cost underground operations.
Silver <XAG=> surged to a 27-year high of $16.24 and was
last quoted at $16.14/16.19, versus its previous close of
$15.67/15.72 late on Wednesday.
Platinum <XPT=> was flat at $1,550/1,555 an ounce, after
hitting a record of high of $1,560 on Wednesday. Palladium
<XPD=> was also little changed at $373/376 compared to its
Wednesday late quote,.
(Additional reporting by Atul Prakash in London, Lewa Pardomuan
in Singapore and Chris Kelly in New York)
