Gold hit record highs near $1,250 an ounce in Europe on Friday as investors bought the metal to protect against sovereign risk in the euro zone and instability in the foreign exchange markets. Gold priced in euros, sterling and Swiss francs extended the record highs they have already set this month as investors concerned about the outlook for the European currencies chose gold as an alternative asset. Spot gold hit a record $1,248.95 and was bid at $1,246.75 an ounce at 1046 GMT (6:46 a.m. EDT), against $1,231.83 late in New York on Thursday. US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $17.70 to $1,246.90 an ounce. It closed Friday at $1,227.40 per troy ounce on the New York Mercantile Exchange, down from $1,228.80 per troy ounce late Thursday. “The gold price has benefited from strong safe-haven demand linked to fiscal issues in the euro zone, and a pull-back from the euro as a reserve currency,” said BNP Paribas analyst Anne-Laure Tremblay. “We expect incremental safe-haven demand to ebb as the Greek crisis subsides,” she added. “However, gold will remain a much sought-after hedge should fiscal concerns over Greece or other EMU countries mount again.” Concerns over the outlook for Greece and other debt-laden euro zone economies have prompted demand for assets seen as a safe store of value this year. A $1 trillion rescue deal aimed at stabilizing financial markets announced last weekend helped the euro and European equities recover some losses, but the boost it gave the markets has proved short-lived. The cost of insuring peripheral euro zone government debt against default rose on Friday, having fallen sharply this week after the deal was unveiled, while the euro fell below $1.25 to an 18-month low and European shares slid. A weaker euro and consequently stronger dollar would usually weigh on gold, but this link has been weakened as sovereign risk concerns fueled buying both of bullion and the US currency. While investors have traditionally bought gold as an alternative to the dollar at times when the US currency is weak, analysts say they are increasingly seeing it as an alternative to paper currencies in general. “Bullion is performing rather well against any fiat (paper) currency at the moment,” said VTB Capital analyst Andrey Kryuchonkov. Investment interest in physical bullion was strong as buyers sought safety, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, at a record high 1,209.5 tons on Thursday. The fund's reserves have risen 68.5 tons or 6 percent in the last four weeks. The SPDR ETF is the world's sixth largest holder of gold, ahead of Switzerland, China and Japan. However, high prices are set to curb gold demand from the jewelry sector after a soft year in 2009 in key gold buying centers such as India, Turkey and the Middle East. Gold imports by India, the world's biggest market for the precious metal, could drop for a third straight year in 2010 as record high prices scare off traditional buyers. Silver tracked gold higher to at $19.63 an ounce against $19.41. Platinum was at $1,721.50 an ounce against $1,731.50 and palladium at $529 against $537. “Selling pressure has again been seen overnight but again we expect tightening fundamentals to offer background support,” said James Moore, an analyst at TheBullionDesk.com. “Volatility may increase in the coming days ahead of next week's Platinum Week activities in London.” Global stock markets plunged Friday as deepening concerns over the euro and the deep spending cuts under Europe's bailout plan pushed the currency to 18-month lows, while gold prices hit record highs as investors sought safety, dealers said. They said sentiment turned sharply in the afternoon as US markets opened weaker despite solid economic data, with early losses snowballing in Europe as hopes that the euro zone will sort out its debt nightmare faded badly. In New York, the Dow Jones industrial average ended down 163 points but closed well off its lows of the day. The Dow fell 162.79, or 1.5 percent, to 10,620.16. The Dow had been down nearly 246 points. It has fallen seven of the last nine days. The Standard & Poor's 500 index lost 21.76, or 1.9 percent, to 1,135.68, while the Nasdaq composite index fell 47.51, or 2 percent, to 2,346.85. In London, the benchmark FTSE 100 index of leading shares closed down 3.14 percent to 5,262.85 points. In Paris, the CAC 40 plunged 4.59 percent to 3,560.36 points and in Frankfurt the DAX tumbled 3.12 percent to 6,056.71 points. The euro dived to $1.2359 at around 1520 GMT, striking its lowest level since late October 2008. Oil below $72 Benchmark crude for June delivery lost $2.79, almost 4 percent, to settle at $71.61 a barrel on the New York Mercantile Exchange. Friday's settlement price is the lowest since crude settled at $71.19 on Feb. 5. In London, June Brent crude lost $2.93 to settle at $77.18 on the ICE futures exchange.
