Gold bugs put shine on metal

SPECULATION in gold is nearing record levels following last week's surge. Financial buyers on the New York futures market have built up claims over 26m ounces.

That is nearly three times last decade's lows, and approaches the 29m ounce futures position seen at the height of the 1979-80 mania.

'Last Wednesday was one of the biggest days I've seen in fifteen years,' said veteran analyst Andy Smith at the bank Mitsui. 'The interest on the futures market rose 30% in August. Something is happening.'

Gold finished the week at $376 an ounce, and at a six-year high against sterling of £240.

Nervous gold bugs might want to take profits. But Smith notes that similar surges, in March 1993 and January 1996, were each followed by a three-month boom. He sees a case for a traders' rally, but remains bearish of gold long term.

Gold has proved a poor long-term hedge against inflation over the last three decades. It has fallen by a third in real terms.

House prices have risen 70%. So have shares, before dividends. Including payouts, the stock market has produced 600% real returns.