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Gold price breaks through USD1,200/oz threshold

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The spot gold price set a new record of USD1,217 per ounce in early London trade today as the US Dollar Index fell to its lowest level since early August 2008.

The price of gold has surged 25 per cent in the three months to 1 December 2009.

Gold denominated in JPY, CHF, EUR, GBP and AUD have also seen returns of between 15 per cent and 22 per cent over the same period.

Daniel Wills, senior analyst at ETF Securities, says: “Continued strength in risk assets has seen sustained pressure on the Greenback in the near term, boosting gold returns. Gold has one of the most consistently strong negative correlations to the USD amongst commodities over time, making it an attractive alternative asset to the USD. Recent market volatility following Dubai-related credit concerns have also underlined gold’s investment appeal as a safe haven investment and as a currency, event and inflation hedge over the longer term.”

The most recent move in the gold price builds on the sharp rise that started in November driven by the announcement that India will buy 200 metric tons (USD7bn) of IMF gold. Many market participants view this purchase as just the tip of the iceberg, with China, Russia and other central banks also indicating their intention to build up gold holdings as part of their strategy to diversify away from the US dollar.

Gold is being viewed as one of the primary alternatives to holding paper currency and the gold price has become a key barometer of investor confidence in government policies. 

ETF Securities’ gold ETCs have seen USD2bn of investment inflows since the start of 2009, with physically backed gold ETC holdings of eight million ounces at the end of November, equivalent to USD9.6bn at current prices.

Physically-backed gold ETCs were up 46 per cent (2.5 million ounces) since the end of November 2008 and 100 per cent (4.2 million ounces) since December 2007.

Other physical precious metal ETC holdings also continue to post fresh historic highs with physically-backed silver, platinum and palladium ETCs seeing their metal holdings (in ounces) reach the highest levels since inception. Precious metals have been the strongest performing DJ-UBS commodity sector since the start of September, up 26 per cent. This growth is more than twice that of the broad DJ-UBS Commodity Index and the S&P 500 Index over the same period.

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