Gold price vaults over dollars 400-an-ounce barrier

GOLD prices rocketed through dollars 400 an ounce yesterday in London, gaining dollars 12 in hectic trading as speculators sought a refuge from Europe's frenzied currency market upheaval, writes Lisa Vaughan.

Prices faltered late in the day as the computer-led investment funds driving the rally in New York and London changed tack and began to sell.

But a renewed bout of buying fuelled gold to a close of dollars 406.15/65 compared with its previous dollars 394.20/60.

Gold's ascent began in New York trading late on Thursday night, propelled by speculation that the European exchange rate mechanism was teetering on the brink of collapse.

Futures and options buying by investment funds accelerated the advance. Overnight the metal broke through dollars 400 for the first time since the start of the Gulf war in 1991.

Gold prices have risen 24 per cent from their seven-year lows in March but until now have stalled at the psychologically important dollars 400 level.

Andrew Smith, precious metals analyst at UBS, believes that the gold bubble will eventually burst, deflating prices to dollars 385 by August. He forecasts an an average price of dollars 350 by the last quarter of the year.

'When you have a market driven almost entirely by speculative buying you have a mechanism that can reverse gear very quickly,' he said. 'This market is potentially fickle and vulnerable to shock.'

Other precious metals also soared. Silver closed 25 cents higher at dollars 5.40 an ounce. Platinum closed more than dollars 6 higher at dollars 414.50 an ounce.