Gold and platinum sailed to record highs on Monday, boosted by dollar weakness and a power crisis in major producer South Africa that derailed output. The rise in precious metals also pulled silver to a 27-year high.
Spot gold hit a historic $929.20 per ounce before paring gains slightly to stand at $927.50/928.40 an ounce by 1700 GMT, against $913.00/914.00 late in New York on Friday. The dollar fell versus the euro, making bullion priced in the US currency cheaper for non-US investors, as markets anticipated the US Federal Reserve's policy meeting this week.
Markets are betting that the Fed will cut interest rates by as much as 50 basis points after the two-day policy meeting ending on Wednesday, following last week's hefty 75-basis-point cut in a rare move between scheduled meetings. Those expectations were heightened after data showing weaker than expected US new home sales in December.
On the fundamental front, South African mining companies hope to resume production later this week after being allowed to carry out underground maintenance work in mines across the country that have been crippled by a power crisis.
"We now actually do have a compelling fundamental story on precious metals, due to South Africa and the rest of the African subcontinent," said Lars Steffensen, managing director of commodity trading at Ebullio Capital Management.
"I would say that with this rally, 50 percent of it is a dollar story because of the interest rate cuts and 50 percent is a fundamental story," he added. In other bullion markets, US gold futures sustained gains, with the most active February contract hitting a record $929.80.
With the dollar's fall and US recession fears persisting, analysts said safe-haven sentiment for gold remained positive. "The environment should remain overall supportive, whether it will finally really touch $1,000 has to be seen," Alexander Zumpfe, precious metals trader at Heraeus said.
Analysts said production problems in South Africa, which accounts for about 10 percent of global gold output and 80 percent of platinum production, might support the white metal more than gold.
The world's biggest platinum producer, Anglo Platinum, and top gold miners Anglogold Ashanti, Gold Fields and Harmony all stopped mining after they were told by the state-owned power utility it could not guarantee supplies to their operations.
"We are now concerned that the shortfall in production will need to trigger a structural change in the platinum market," said John Reade, analyst at UBS Investment Bank, in a daily report, adding the metal might rise to $1,800 in one month.
Platinum, mainly used to make jewellery and to clean vehicle exhaust fumes, stood at a record high of $1,720/1,725 per ounce, compared with $1,671.50/1,676.50 in New York on Friday. Other precious metals were pulled up by the momentum in gold and platinum with silver striking a 27-year high of $16.70. It was last at $16.66/16.71 an ounce from $16.43/16.48 on Friday when it hit a 27-year high of $16.61. Palladium also rose to $384/388 an ounce from $378.50/383.50.