Bush worries start rush for gold

GOLD is set to test the key $450 barrier in the coming weeks as concerns over the weak US dollar following last week's re-election of President Bush send investors rushing for the safe-haven metal.

Analysts believe the psychological mark is well within reach after seeing the dollar slump to a record low against the euro. Mine production is also down this year as demand climbs.

Gold hit $435 an ounce in Asia yesterday, its highest since 1988 when $450 was last breached. The recent spurt has taken the average gold price this year to $403.62, up almost 13% on a year ago.

Simon Village, managing director of London-listed Gold Bullion Securities, said: 'Since the US election, traders are looking at the fundamentals and have put the bet back on, long on gold, short on the dollar. I believe we will hit $450 by the end of the year. We could be there in two to three weeks.'

Concerns over the US dollar have resurfaced since Bush's re-election last Wednesday. Analysts believe he will do little to correct America's vast budget and current account deficits.

The dollar is on course to slump to $1.30 against the euro, given the momentum behind the dollar sell-off, and few expect a possible interest rate increase in the US this week to have any notable effect.

Experts point out that there is also a wider interest in gold now, with many funds buying into the metal as part of a wider swoop on commodities.

Trading volumes at Gold Bullion Securities, the investment fund listed by the World Gold Council last year to help punters to trade the metal, hit $11m (£8.5m) a day last month, double the level in September.

Village said: 'There's a directionless stock market, weak dollar, global uncertainty and low interest rates. All these things bode well for the gold price.'

The technical buying is also backed up by the physical fundamentals, with poor weather and production problems hitting global gold output this year.

Worldwide production was down 7% in the first half, and metals consultancy GFMS is predicting a 3% fall for the year as a whole at 2506 tonnes.

Demand for gold in the huge Indian jewellery market is also nearing its peak with the onset of Diwali, the Hindu festival of lights. Many people buy gold as a gift during the festival.