Price of 'safe haven' gold hits 25-year high

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The price of gold, often seen as a safe haven for investors in times of trouble, hit a fresh 25-year high yesterday as traders fretted about the outlook for inflation and the dollar.

Gold for February delivery ended up $9.30 at $550.50 in New York yesterday, its highest since January 1981,after the precious metal touched $551.40 an ounce in volatile trading.

Many investors have increased their holdings in recent months because of uncertainty about the dollar and diversification away from currencies and equities.

Traders are eyeing $600 as the next psychological barrier. Gold prices have risen nearly 20 per cent in the past two months and more than doubled in five years.

Robin Edwards, the president of Sabre Fund Management in London, said: "People have had for many years a very negative view of gold and that view is changing. There is a lot of wealth creation in countries that have an affinity with gold." Last week China hinted it was looking at diversifying its vast reserves portfolio.

The yellow metal has benefitted from buying by funds, inflation fears, falling mine output and rising production costs. Analysts said investor expectations of an end to both the long-run of interest rate rises in the US and the accommodative monetary policy in Japan has undermined support for the dollar. Gold often moves in the opposite direction from the dollar as traders see it as a hedge.

Meanwhile the bull market in major base metals continued on the London Metal Exchange. Zinc was held to a fresh 16-year high, aluminium was at a new 17-year peak, while copper moved towards a re-test of the recent all-time high of $4,576 a tonne.