LONDON (Reuters) - Gold steadied Thursday, but analysts expect the precious metal to extend gains to new records over coming days as waves of investor money come flooding into the market looking for safety.
In euro and sterling terms, bullion hit a record high as the as investors moved to the yellow metal as a haven from sovereign risk in the euro zone.
Spot gold was bid at $1,236.15 a troy ounce at 1343 GMT (9:43 a.m. EDT) from $1,236.35 an ounce late in New York Wednesday, when it hit a record $1,248.15 on fears that a $1 trillion European rescue package will not solve the euro zone debt crisis.
However, the European Central Bank’s commitment to buy euro zone government bonds has dampened gold market sentiment as it cuts chances of sovereign default in the bloc.
But analysts say risk aversion still dominates market psychology and the fact that gold has moved up alongside the dollar only reinforces investor bias toward the precious metal.
“I think we could easily see a new record high before the weekend,” said analyst Walter De Wet at Standard Bank, referring to the spot gold price. “But also ...at these levels smaller than usual volumes could push prices higher,” he added.
Gold priced in sterling rose to a record high of 840.95 pounds an ounce while euro-priced gold touched an all-time high of 988.92 euros per ounce as the dollar gained versus sterling and the euro.
The U.S. currency extended gains versus the euro, which had fallen to a one-week low, after data showing a decline in weekly
U.S. jobless claims.
Traditionally gold moves in the opposite direction to the dollar, which when it rises makes commodities more expensive for holders of other currencies.
“What is bullish for gold is the coincident dollar strength. Similar to that in late 2008 and early 2009 after Lehman’s bankruptcy -- a period of heightened risk aversion,” said Dan Brebner, analyst at Deutsche Bank. “Over the next 6 months we could see a 25-30 percent increase in gold.”
Strong investor interest in gold can be seen in the holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, which said its holdings stood at a record high of 1,209.499 tonnes as of May 12.
“What we have seen is, ETF holdings have been pretty sticky and we haven’t seen a lot of selling whenever the global macro picture has improved. People tend to hold onto their holdings,” De Wet at Standard Bank said.
U.S. gold futures hit a record peak of $1,249.2 an ounce on Wednesday. They were last at $1,240 an ounce, down about $3 from the previous session.
Investors use gold as a hedge against financial and political turbulence and as a store of value during times of high inflation, which erodes wealth.
“Gold is the ultimate store of value and the best hedge against sovereign or inflation risks,” VTB Capital said in a note. “The rush of investors into gold is unlikely to abate anytime soon, especially now that traditionally hawkish Eurozone central bankers might have to engage in quantitative easing.”
Loose monetary policy, focus on growth and some concern that governments could use inflation to devalue their debt is another reason cited for gold’s popularity.
Fears that governments around the world will resort to competitive devaluations of their currencies to boost economic activity is another plus for gold.
“In the kind of environment where countries compete using their currencies, gold will of course appreciate,” Brebner said.
Spot silver was at $19.59 an ounce from $19.48, platinum at $1,726.00 from $1,736.50 and palladium at $541 from $540.
Additional reporting by Humeyra Pamuk, Editing by Keiron Henderson