Gold and platinum soared to historic highs on Thursday as speculators and investors snapped them up on the back of strong oil prices and expectations for further U.S. interest rate cuts, analysts said.
Gold's allure as a hedge against inflation and a safe-haven asset got a boost as oil leapt to a lifetime high of $100 a barrel on Wednesday and the dollar tumbled.
"With the dollar under pressure once again and new year fund allocations being made, it is not surprising that a range of commodities has started 2008 very strongly," said Tom Kendall, metals strategist at Mitsubishi Corporation.
"We do not see any change to the bullish drivers for gold in the short term and the market could easily add another $15 to $20 over the next few days before correcting," he said, adding the metal was getting help from geopolitical instability.
Spot gold rose as high as $870 an ounce, up from $855.70/856.50 late in New York on Wednesday. The metal jumped more than 30 percent in 2007, its biggest annual gain since 1979.
While the dollar was steadier against the euro, analysts expected further declines given prospects of aggressive U.S. rate cuts.
Minutes of the U.S. Federal Reserve's Dec. 11 policy meeting showed policymakers had worried that a credit crunch could sharply hit U.S. economic growth and that big interest rates cuts would be required.
A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
Oil hovered near its peak of $100 a barrel, underpinned by expectations of thinning U.S. stockpiles, a sliding dollar and geopolitical risks.
Gold was fixed at a record high of $850 an ounce in January 1980 as a surge in inflation linked to strong oil prices, Soviet intervention in Afghanistan and the impact of the Iranian revolution sparked buying by investors.
After adjusting for inflation, the 1980 record price was $2,079 an ounce at 2006 prices, while the real average price in 1980 was $1,503, metals consultancy GFMS Ltd said.
To Hit $900?
"With $850 cleared, gold could quite easily find further upside momentum as the background picture of geopolitical tensions and unstable financial markets attracts safe-haven seeking investors," TheBullionDesk.com, said in a daily note.
"Resistance is expected at $860/875 and $890 in the coming sessions, but given the current climate gold could easily reach $900 before more substantial resistance emerges."
In other markets, February U.S. gold futures rose $8.3 to $868.30 an ounce in electronic trade. Tokyo's gold futures market was closed for a holiday.
Gold's rally threatened to put a damper on Indian weddings and Chinese new year celebrations, with jewellery makers and consumers shying away. Some analysts advised caution.
"We are concerned that gold is vulnerable to a nasty correction. After all we consider the metal to be $100 to $150/oz above near term fundamental value," said John Reade, head of metals strategy at UBS Investment Bank.
"But this may not matter in the near term following a decisive break of the previous all-time high. Accordingly, we raise our short-term forecasts for gold and now see the metal at $900/oz in one month," he said in a client note.
UBS had predicted it to hover around $750 in the short run.
Platinum rose to $1,548 an ounce and was last at $1,545/1,548, versus $1,539/1,544 in New York. Silver rose to $15.36, its highest in nearly two months, before easing to $15.33/15.38, against $15.17/15.22 late on Wednesday.
Palladium fell to $370/373 an ounce from $373/378.