Gold firmed on Thursday, nearing a record high above $861 an ounce hit the previous day, and dealers said the precious metal might test new peaks in coming weeks as oil’s leap to $100 a barrel ignited inflation fears.
Gold soared more than 30 percent in 2007, its biggest annual gain since 1979. The metal’s allure as an inflation hedge and a safe-haven investment increased as the dollar tumbled to successive record lows, financial markets reeled from a global credit crunch and crude prices scaled new highs.
Spot gold rose to $857.80/858.50 an ounce from $855.70/856.50 an ounce late in
Oil prices dipped on Thursday, after leaping to a lifetime high of $100 the day before, fuelled by expectations of thinning U.S. stockpiles, the falling dollar and geopolitical risks.
U.S. light crude for February delivery fell 32 cents to $99.30 a barrel in Globex electronic trading by 5:24 a.m. British time. U.S. crude touched $100 a barrel in the previous session, surpassing the previous peak of $99.29 set in November.
London Brent crude shed 43 cents to $97.41.
Oil prices climbed 57 percent in 2007, and many fund managers were bracing for another year of volatile, but rising, commodity prices.
Another big worry on Wednesday was Institute for Supply Management data that showed
That followed a clutch of reports last week showing sharp declines in U.S. housing prices and home-building activity and heightened concern that the credit crisis that has rattled markets since August is beginning to hurt the real economy.
On Wall Street, the main indexes all fell by more than 1 percent, with the Dow Jones industrial average down 263.78 points, or 1.99 percent, at 13,001.04 .DJI and the Standard & Poor’s 500 Index .SPX down 26.06 points, or 1.78 percent, at 1,445.20. The Nasdaq Composite Index fell 53.06 points, or 2 percent, to 2,599.22.
European shares also ended the first trading day of 2008 in negative territory, with the FTSEurofirst 300 index closing down 1.2 percent. Last year it recorded its worst annual performance since 2002. Germany’s DAX lost 1.4 percent.
Markets expect the Federal Reserve to cut interest rates this month to stave off a recession, and minutes from the central bank’s last policy meeting released on Wednesday reinforced that view.
Members of the bank’s rate-setting committee worried at their December meeting that a credit crisis could sharply slow U.S. growth and require addition cuts to benchmark rates.
The Fed cut borrowing costs by 25 basis points to 4.25 percent at its December meeting, and a cut of equal size this month would bring them in line with euro-zone rates, erasing the dollar’s yield advantage over the euro.
That send the dollar sharply lower on Wednesday. Against a basket of six major currencies, it was off 0.9 percent. It also shed nearly 2 percent against the yen to 109.45 yen. The euro rose 0.9 percent to $1.4725.
In 2007, the dollar recorded its worst year in the last four, falling 8.4 percent against the currency basket.
Sterling held near record lows versus the euro on Thursday as investors looked to UK credit and housing data for clues on how soon the Bank of England is likely to cut interest rates again.
A run of weak data, particularly from the housing sector, has helped cement expectations that the Bank will follow December’s unanimous rate cut to 5.50 percent with more easing in 2008 — starting perhaps as soon as next week.
That has put pressure on sterling which had previously been a popular buy with yield-hungry investors.
The euro was steady at 74.29 pence having climbed to 74.50 pence the previous session for the first time since its 1999 launch. On the Bank’s trade-weighted basis, the pound opened at 96.80, matching Wednesday’s four-year low.
However, the pound managed to make a bit of progress versus a broadly weaker dollar, edging up to $1.9740, as investors bet that U.S. rate cuts would be deeper than UK ones.
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