Gold touches a fresh high of $1,518.6 per troy ounce

Prices for silver and diamonds also near record highs

THE PRICE of gold surged to yet another all-time high yesterday as growing fears over a weaker dollar sent investors scrambling for the safest asset class of all.

Gold hit an unprecedented $1,518.6 per troy ounce in morning trading yesterday.?It eventually fell back to $1,507, although some traders predict it will hit $1,600 by the end of the year.

Silver also surged, with spot prices reaching $49.82 an ounce - close to the all-time high of $50.35 recorded in January 1980.?It eventually fell back to $47.09.

The greenback has come under heavy selling pressure ahead of this week's Federal Open Market Committee, with markets expecting chairman Ben?Bernanke to reiterate his commitment to easy money.

Long-standing gold bug Jim Grant, the founder and editor of Grant's Interest Rate Observer, said he was expecting a third round of quantitative easing in the US, which would propel gold to new highs.

The greenback also slid against commodity currencies, diving to a 29-year low of A$0.9291 versus the Australian dollar and a three-year low of C$0.9503 versus the Canadian loonie.

Analysts blamed the buck's unpopularity on the Federal Reserve's ongoing inflationary monetary policy, anxieties about US government debt and suggestions that China is moving to limit its exposure to the greenback.

BNP Paribas' Ray Attrill said "it's a weak dollar story". "We don't see any imminent reversal unless Mr Bernanke has got a rabbit to pull out the hat," he added, referring to the Fed's interest rate-setting decision.

Economists say that sky-high precious metals prices are here to stay as desperate investors rush towards perceived "safe havens" to escape the damaging effects of inflation.

The market has also been influenced by fears that China is planning several new investment funds to diversify its $3 trillion foreign reserves holdings, much of which is in dollars.

Diamonds are also reckoned to have reached record highs on the back of slowing production and increased demand from China and India, while WTI crude oil rose to over $113 a barrel due to ongoing fears about political turmoil in the Middle East.

David Fuller's view City A.M. It is a good paper, run by a very smart editor - Allister Heath. However in reporting news items, I have often pointed out that front page financial headlines are mirrors, reflecting what we have been doing. Veteran subscribers know that when reports on any of their favourite markets move from the middle pages to the front page, a reaction is usually imminent.

What next for the precious metals sector, which Fullermoney has described for nearly a decade as being in a secular bull market?

I regard silver (weekly & daily) as the key to short-term timing as it has been in the pole position recently. On Thursday, I described last week's acceleration as climactic (see also below in 'My personal portfolio'). Yesterday's sharp pullback following a sniff at the important psychological milestone of $50, suggests that a vacuum of supply relative to demand has now been temporarily reversed. A pullback to $40 could easily occur, before a consolidation builds up sufficient support for perhaps a resumption of strength in 4Q 2011.

Interestingly, the leader during most of 2010's advance for precious metals - palladium (weekly & daily) - has been in a process of mean reversion since this year's high on 22nd February. While this may be no more than a correction towards the rising 200-day moving average, palladium will need to break its progression of lower rally highs (the last one is just over $800) before we will have clear evidence that demand has regained the upper hand.

Platinum (weekly & daily), the upside leader in 2007 and early 2008, has been a wallflower since last October. I will continue to give an eventual upside breakout, perhaps in 4Q, the benefit of the doubt provided platinum remains above a rising 200-day MA.

Gold (weekly & daily) is once again somewhat overextended relative to its MA and this has been followed by mean reversion in the past. Also, $1500 is a psychological milestone along gold's secular journey. I maintain that it will go much higher over the next few years, for all the reasons previously discussed during the last decade. However, for gold to now accelerate to the upside, as silver has done, is certainly not impossible but I feel that the trend consistency characteristics to date, including seasonal factors, suggest that a pause and consolidation is more likely.