Capital Gold Group Report: GOLD HITS FIVE MONTH HIGH - WITHIN STRIKING DISTANCE OF NEW HISTORICAL RECORD

FINANCIAL POST, MAY 11, 2010

LONDON -- Gold hit five-month highs on Tuesday, rising to within US$5 of its December record peak as risk aversion returned on doubts over smaller eurozone countries' ability to cut their deficits despite a US$1-trillion aid package.

The measures, unveiled on Monday, sparked a relief rally in assets seen as higher risk, such as the euro, stocks and industrial commodities. Gold slipped, but has recovered as the rally in other assets lost steam.

Spot gold hit a peak of US$1,223.90 an ounce, its highest since early December, and was bid at US$1,221.80 an ounce at 1402 GMT, against US$1,201.90 late in New York on Monday.

"Investors are trying to search out safe havens, and clearly gold is one of those," said RBS Global Banking & Markets analyst Daniel Major. "While the current environment of acute investor risk aversion remains, gold is bound to benefit."

"After very few inflows into the exchange-traded funds and other investment instruments, we have seen a sharp increase in the last or three weeks."

U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose US$22.00 to US$1,222.80 an ounce. Silver also hit a five-month high at US$19.18, before easing back to US$19.15 an ounce against US$18.44.

Gold rallied last week on concern that Greece's debt problems would be echoed elsewhere in the eurozone, but slid 2% on Monday after the rescue package sparked a relief rally across financial markets.

That recovery fizzled out on Tuesday. The euro lost 0.4% against the dollar, European shares fell nearly 2% and U.S. shares opened lower.

The dollar rose against a basket of currencies as risk appetite waned. Usually this would weigh on gold, which can be bought as an alternative to the U.S. currency, but the usual strong link between the two has weakened in recent months.

"Gold has recently proven an ability to escape from its traditionally negative correlation with the greenback, as long as bullish drivers emanate from its safe-haven status or its perception as an asset of last resort, features it shares with the U.S. currency," said Societe Generale in a note.

Investment in gold held firm, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, rising 3.652 tonnes to a record 1,192.150 tonnes on Monday.

Its holdings have risen 33.148 tonnes, worth some US$1.275 billion at Monday's London afternoon fix price, in May so far.

But high prices weighed on Indian gold demand, dealers said, after physical offtake saw a slight pick-up in the previous session ahead of the key gold-buying festival of Akshaya Tritiya on May 16, dealers said.

Gold priced in euros and Swiss francs also hit record highs at 963.10 euros an ounce and 1,356.51 francs an ounce respectively.

Platinum group metals fell along with other industrial commodities after Monday's bounce. Platinum was at US$1,689 an ounce against US$1,693 and palladium at US$519.50 against US$529.