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Gold hits $1,000 for first time

13 March 08 21:36 GMT

The price of gold reached a record, trading at $1,000 an ounce for the first time, pushed higher by a weak US dollar and fears about the US economy.

Concerns about a possible US recession are seeing investors buy up commodities such as gold as an alternative to company shares and the US dollar.

Since the beginning of the year the value of gold has increased by about 20%, after it rose 32% in 2007.

Gold eventually settled for the day at $993.80, up $13.30 an ounce.

Analysts say gold will stay high as long as dollar and growth fears remain.

"Every bit of bad US economic data boosts gold in two ways," said Fortis Bank.

"First because it reinforces the return of its role as a safe-haven asset, and second because the dollar falls on expectations of further Federal Reserve rate cuts."

Gold is measured and sold in troy ounces. One troy ounce equals 31.1035 grams or 480 grains. One troy ounce is equal to 1.09711 avoirdupois ounce - those widely used to measure weights in the US and UK.

Short term fix?

The dollar fell further on Thursday against key currencies, including the euro and Japanese yen.

At one point, it was worth less than 100 yen for the first time since 1995, while it plumbed new depths against the euro at $1.5645.

Analysts are predicting that it could fall further as more details emerge of the losses suffered by banks and hedge funds due to investments centred on the troubled US housing market.

Already many companies have unveiled billions of dollars of losses which has caused credit markets to freeze and has created an environment where there is less money available for consumers and businesses to borrow.

At the same time, there are increasing signs that the US is on the brink of recession.

Official data out on Wednesday showed disappointing retail sales in February.

This has added to the recent drum beat of bad news, including a shrinking of the service sector in January and February, and an unemployment rate that is at its the highest level for five years.

'Cut and inflate'

Despite aggressive interest rate cuts and White House measures to stimulate consumer spending, it is expected that US rates - currently at 3% - will have to come down further.

Analysts said this will weaken the dollar further and accelerate inflation.

"The Federal Reserve is going to cut and inflate our way out of this credit mess and the implications are going to be higher and sustained inflation," said Ichael Darda, of MKM Partners.

"That's been signalled by not just gold but by virtually every commodity and the dollar."

The oil price surged to a fresh high above $110 a barrel earlier, while agricultural commodities, including cocoa and coffee, also rose.

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