Gold hit record highs near $1,250 an ounce in Europe as investors bought the metal to protect against sovereign risk in the euro zone and instability in the foreign exchange markets.
Gold priced in euros, sterling and Swiss francs extended the record highs they have already set this month as investors concerned about the outlook for the European currencies chose gold as an alternative asset.
Spot gold hit a record $1,248.95 and was bid at $1,246.75 an ounce at, against $1,231.83 late in New York on Thursday.
US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $17.70 to $1,246.90 an ounce.
“The gold price has benefited from strong safe-haven demand linked to fiscal issues in the euro zone, and a pull-back from the euro as a reserve currency,” said BNP Paribas analyst Anne-Laure Tremblay.
“We expect incremental safe-haven demand to ebb as the Greek crisis subsides,” she added. “However, gold will remain a much sought-after hedge should fiscal concerns over Greece or other EMU countries mount again.”
Concerns over the outlook for Greece and other debt-laden euro zone economies has prompted demand for assets seen as a safe store of value this year.
A $1 trillion rescue deal aimed at stabilizing financial markets announced last weekend helped the euro and European equities recover some losses, but the boost it gave the markets has proved short-lived.
The cost of insuring peripheral euro zone government debt against default rose on Friday, having fallen sharply this week after the deal was unveiled, while the euro fell below $1.25 to an 18-month low and European shares slid.
A weaker euro and consequently stronger dollar would usually weigh on gold, but this link has been weakened as sovereign risk concerns fueled buying both of bullion and the US currency.
While investors have traditionally bought gold as an alternative to the dollar at times when the US currency is weak, analysts say they are increasingly seeing it as an alternative to paper currencies in general.
“Bullion is performing rather well against any fiat (paper) currency at the moment,” said VTB Capital analyst Andrey Kryuchonkov.
Investment interest in physical bullion was strong as buyers sought safety, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, at a record high 1,209.5 tons on Thursday.
The fund's reserves have risen 68.5 tons or 6% in the last four weeks. The SPDR ETF is the world's sixth largest holder of gold, ahead of Switzerland, China and Japan.
However, high prices are set to curb gold demand from the jewelry sector after a soft year in 2009 in key gold buying centers such as India, Turkey and the Middle East.
Gold imports by India, the world's biggest market for the precious metal, could drop for a third straight year in 2010 as record high prices scare off traditional buyers.
Among other commodities, oil prices fell more than 2% to below $73 a barrel on Friday on concerns the European debt crisis may curb global growth, and therefore energy demand. Industrial metal prices also slid.
Silver tracked gold higher to at $19.63 an ounce against $19.41. Platinum was at $1,721.50 an ounce against $1,731.50 and palladium at $529 against $537.
“Selling pressure has again been seen overnight but again we expect tightening fundamentals to offer background support,” said James Moore, an analyst at TheBullionDesk.com.
“Volatility may increase in the coming days ahead of next week's Platinum Week activities in London.” (Reuters)