Funds hold on as gold eyes new highs -analysts Wed September 10, 2003 10:54 AM ET By Veronica Brown LONDON, Sept 10 (Reuters) - Gold is aiming for prices last seen in 1996, and the market's high exposure to often fickle speculative fund money is seen as only a minor barrier to the advance, analysts said on Wednesday.
Bullion is approaching February's $388.50 an ounce -- a six and a half year high set as the metal roared into fashion as an alternative investment in the run-up to war in Iraq.
"The market seems to be very confident and confidence is probably the strongest factor for a bull market," said Frederic Panizutti, analyst with Switzerland-based Gold Avenue.
Gold, currently trading around $380.00, has gained more than 10 percent this year as funds have turned to commodities in general to diversify their portfolios.
Bullion has looked a good bet amid a shaky bond market, reticence over stocks and continued geo-political tensions almost two years since terror attacks in New York and Washington on September 11, 2001.
The number of large positions held by speculators on the New York COMEX futures market has ballooned to record levels.
Last Friday's Commitment of Traders Report (CFTC) showed funds had dug into their pockets again, with the net speculative long position in COMEX gold jumping to 122,847 contracts in the week ended September 2 from 100,227 on August 26.
But analysts, having feared a brutal sell-off by speculators as their exposure grew, are now detecting steel among the new buyers.
BUY AND HOLD
"An overhang of a long position is a negative thing as far as one would expect ordinarily -- the funds normally want to take profit. The difference this time is that we believe those who are taking these positions are showing themselves rather more prepared to buy and to hold," Ross Norman of TheBullionDesk.com said.
"The people who are buying in a more general commodity play seem to have a different feel to anything we have seen before," he added.
Bullion jumped to a fresh seven-month peak on Tuesday as fund buyers, already enamoured by the metal's safe-haven appeal, ran with a softer dollar, which makes gold less expensive for holders of other currencies.
Analysts said the market had a stronger fundamental core to it than when gold last scaled the highs in February.
They noted the way producers were retreating from hedging -- the practice of selling yet to be mined nuggets on forward markets -- as well as global economic worries, the ailing dollar and political tensions.
Support has also come from speculation about a possible renewal of the 1999 agreement among European central banks to regulate gold sales, while investor interest has been spurred by the prospect of listings on the London and New York stock markets for gold-backed securities.
"It's clear that the market has in mind to try and take out the early year high at $388.50 -- which will be quite cathartic when done," Nick Moore of JP Morgan said.
"A lot of non-traditional funds are now entering into commodities, and gold is just one of the basket," he said.
BEYOND THE HIGHS
Analysts expected a price fall at some point on profit-taking, but said the market remained poised to look beyond $388.50.
"When you look at gold specifically, we've seen renewed euro strength...and that's obviously going to play a big part in how successful gold is at pushing ahead," Moore said.
Ingrid Sternby of Barclays Capital said: "The technical trend is still strong -- even if there is an extremely large fund long position we still don't rule out a test of the high seen in February earlier in the year," she added.
TheBullionDesk's Norman said: "The big number at the moment is $388.00 -- a successful break of that should then see $400.00."
