NEW YORK (CNNfn) - Gold surged above $300 an ounce Tuesday for the first time in nearly a year as investors again cheered a weekend announcement by European central banks to limit annual gold sales and lending for the next five years.
Spot gold crossed $300 and touched $329 in New York before falling back to $310 in late afternoon. It had closed Monday at $281.10 a troy ounce in New York trading, when prices also rose sharply after the central banks' statement. Gold last traded at $300 an ounce in October 1998.
The rise reflects ebbing concerns about the prospect for widespread selling by European central banks, which control some of the world's largest bullion stockpiles, and a rebound from long-depressed prices, market analysts and investors said.
"It's a considerably depressed asset," said Jean Marie Eveillard, who manages the SoGen Gold Fund. "If you look at the last 20 years, financial assets have been going north and gold has been going south. It was not so much the central bank selling putting pressure on price of gold, it was the fear of additional central bank selling in the future. That fear is gone for the next five years."
All that glittered on Tuesday was gold
The lending by the banks has been the real engine behind the fall in price of gold in recent years, said William O'Neill, director of commodities research for Merrill Lynch. He said that while the banks aren't going to cut lending, capping the rapid growth in lending will help the market.
"It's the constant increases year after year after year that overwhelmed the market," said O'Neill. "You're looking at a market that might be capable of $350 or $360 (an ounce), and that has bottomed for some time."
Other analysts were not as confident, though. The jump in the last two days may be a result of traders caught with short positions in gold having to react, said Bernard Savaiko, futures research director, PaineWebber.
"My own personal feeling is we're going to have to digest some of these gains. I'm at a loss for the fundamental reasons for it to go higher from here," Savaiko. "I think it's premature to say an inflation hedge like gold is going to embark upon a new bull market. It's risky to enter the water at this late stage."
The volatility in stock prices Monday and Tuesday is not regarded as a driver in the current gold rise, and Savaiko said that gold is no longer the automatic beneficiary of market uncertainty.
"If there's a gradual (decline in stocks), accompanied by inflation and inflation expectations, that could be positive for gold," he said. "But if it's sudden, like a crash, it could be negative for gold. That was lesson of '87."
Gold prices, which reached an all-time high of $875 an ounce in January 1980, saw its most recent slide start in May after Britain's Treasury announced plans to unload more than half of its $6.5 billion in gold reserves in exchange for world currencies.
The move triggered concern that governments and central banks would soon be dumping bullion reserves, flooding the market and driving prices lower. Gold fell swiftly and sharply, hitting a 20-year low of $257.60 an ounce on July 6.
The weekend announcement by the central banks removed a major uncertainty surrounding gold sales. In a statement, the banks pledged that gold "will remain an important element in global monetary reserves" and vowed not to enter the market as sellers, except in cases for which a sale had already been agreed.
The statement means "the market knows exactly what will be available for sales and for lending for the next five years," Eveillard said.
The European Central Bank and the 11 national central banks in western Europe, along with the British, Swedish and Swiss central banks, hold about half of the world's official bullion reserves.
The gold rally sparked a strong run-up in mining stocks. South African giant AngloGold shot up 13 percent in Johannesburg Tuesday while Newmont Mining (NEM), a big U.S. producer, edged up back near its 52-week high.
Gold stocks also shine
But caution on the gold mining stocks was voiced by J. Clarence Morrison, analyst with Prudential Securities.
"We assume there can be 10-15 percent (gain) left in some of the companies, but we're not prepared to say there's a sustainable rally is on at present," said Morrison. The stocks he feels are best positioned for gains are Freeport-McMoRan Copper & Gold Inc. (FCX), Placer Dome Inc. (PDG) and Barrick Gold Corp. (ABX). They were up between 3 and 6 percent on the day, with Barrick hitting a new 52-week high. But Morrison said there are risks for individual investors looking at these equities.
"You've always been able to do better in gold equities than gold bullion. On the other hand, if things go south, then the gold equities go down faster than the bullion," he said. "Typically you trade gold stocks rather than invest in them per se."
The gold index on the South African stock market jumped 12 percent to its highest level in 2-1/2 years while Australia's gold index added almost 7 percent.
-- from staff and wire reports