European crisis adds to market rush for gold
By Kevin Morrison in London
Published: June 19 2005 21:01 | Last updated: June 19 2005 21:01

Continued European political turmoil this week is likely to benefit gold, which hit a price on Friday of $438.15 a troy ounce.

The European Union's political crisis, which has hit the single currency, has helped gold rise for four weeks in a row. The precious metal has also benefited from its appeal as a hedge against inflation while other commodity prices rise sharply.

Oil and copper prices in Europe hit record highs last week--a sharp turnround in the past month. And the Goldman Sachs Commodity index rose on Friday to within four points of its record high of 397.1 points, reached in April.

This was on the back of improved economic data from the US and China, which raised the prospect of firmer demand for oil and raw materials such as copper, used in the construction, power and automobile sectors. “Investors have renewed their interest in commodities on the back of a better economic outlook,” said Jeffrey Currie, a managing director in global investment research at Goldman.

Data released last week showed China's industrial production rose by 17 per cent to a record Rmb570bn ($69bn) in May and the country's fixed-asset investment increased by 28 per cent last month.

Most of this investment has been in infrastructure projects, a large-scale user of metals.

The reports underlined the view that China's economy is far from slowing down, as had been predicted earlier this year. This in turn helped copper prices rise to a record $3,407 a tonne in London on Friday as demand continues to outpace supply, leaving inventories of the metal falling to their lowest level on record.

The US economy is also showing stronger growth with industrial production rising better than expected and business confidence on the rise.

The December crude oil futures struck a record $60 a barrel on Friday, a sign that oil traders are worried about oil demand over the winter. Kevin Norrish, head of commodities research at Barclays Capital, said his bank was forecasting oil to average $60 a barrel in the third quarter.

He said this was prompting refineries to order as much crude oil as possible and operate their plants near capacity to take advantage of the high margins.

The cost of polluting reached a record high on Friday with European carbon dioxide emissions touching a record €21.20 a tonne

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