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Gold hits 2-year high
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October 5, 1999: 10:24 a.m. ET
Metal nears $340 resistance level; next stop is $370, analysts say
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LONDON (CNNfn) - Gold continued its storming run Tuesday, reaching a two-year high as investors caught out by the recent rally scrambled to cover their positions. Analysts warned the feverish activity shows no sign of ceasing.
In London Tuesday, the morning gold fix was $326 an ounce, up $13 from its previous close, and the spot price was around $338, a two-year high. The price now is brushing a major technical resistance level of $340.
"If it breaks that we could see $370 an ounce," commented Lawrence Eagles, gold analyst at commodities broker GNI
"We've not seen this degree of volatility for a decade," he added.
Tuesday's surge was caused by short-covering, as investors who had sold gold in the expectation of a fall in the price sought to step back into the market to curtail their losses.
Gold hit a 20 year low of $257 in July on fears the market would be swamped by bullion sales from central banks. The recent revival was sparked when the world's major central banks agreed on a moratorium on further bullion sales for five years. European central banks hold more than half the world's official gold reserves.
The market burst through technical resistance at $325, and the rising price has been accompanied by unusually heavy buying activity. "The extent of the move [Tuesday] shows just how much people have been caught out [by the recent surge in gold prices], according to GNI's Eagles.
The activity has spread into derivative markets as well as the spot gold market:
"Option market traders continue to stare in disbelief at volatilities which have spiked to extraordinary levels over the past week," N.M Rothschild & Son treasury analyst Helen McCaffrey told Reuters.
Gold markets were further excited by news of a possible takeover in the sector, with London-listed Lonmin (LMI) confirming it is holding talks regarding buying out Ghana's Ashanti Goldfields. Lonmin, formerly called Lonrho, owns one third of Ashanti already.
The rising price boosted mining stocks, which have surged in recent weeks. In London, Rio Tinto (RIO), the world's biggest miner, jumped 3 percent, while London-listed South African companies Anglo American (AAL) rose 3 percent and Billiton (BLT) rose 5 percent. In Johannesburg, the gold index gained almost 6 percent Tuesday. 
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