Agoracom

By Myra P. Saefong, MarketWatch

Last update: 2:20 p.m. EDT May 16, 2008

SAN FRANCISCO (MarketWatch) -- Gold futures closed near $900 an ounce Friday, marking their highest level in more than three weeks, as crude oil's rally to a fresh record high near $128 a barrel boosted the precious metal's appeal as an inflation hedge.

"Ever since gold became free trading in the early 70s, we've been telling you, 'Buy it as an inflation hedge,'" said Peter Grandich, editor of the Grandich Letter.

"Everywhere one looks they see prices and costs rising," he said in emailed comments. And "as the inflation concerns grow, so should the price of gold."

Gold for June delivery climbed to an intraday high of $904.50 on the New York Mercantile Exchange. It closed with a gain of $19.90, or 2.3%, at $899.90, a level it hasn't finished at since April 23.

"Safe-haven buying is likely to have reemerged on both the surging oil price but also on the appalling consumer sentiment numbers which showed consumer confidence falling to their lowest levels since 1980 -- 28 years ago," said Mark O'Byrne, director at Gold & Silver Investments Ltd., in emailed comments.

The dollar extended losses Friday, despite better-than-expected housing data, after a weak consumer sentiment index reading kept alive doubts about the strength of the U.S. economy.

The U.S. consumer sentiment index in May fell to 59.5 from 62.6 in April, according to a report from the University of Michigan/Reuters.

The dollar index, which tracks the performance of the greenback against other major currencies, fell 0.8% to 72.79.

Meanwhile, in energy trading, crude-oil futures rallied to a fresh record high near $128 a barrel as Goldman Sachs raised its second-half-of-the-year forecast for oil prices by 32% to $141. But Ned Schmidt, editor of the Value View Gold Report, warned that there's no shortage of oil supplies on the market.

"Since no real shortage of oil exists, paper oil is being set up for a dramatic crash that will wipe out many small traders," he said in emailed comments. "For that reason, gold investors should step aside entirely," he said

Risky business
On Thursday, the benchmark gold contract had surged $13.50 to close at $880 an ounce.

June gold ended the week with a gain of 1.6%.

It's been "a commendable turn in gold over the past two days," said Jon Nadler, senior analyst at Kitco Bullion Dealers, in a note to clients.

But "near-term downside risk remains in the market as reports from several trading desks indicate that retail investor demand is still weak and large specs are seen selling into strength," he said.

Base metals rally
The metals complex finished higher across the board Friday.

"The earthquake in China has led to concerns over supply disruptions in the base metals sector and to speculation that China will have to increase its diesel imports to ensure energy supply," analysts at Credit Suisse said in a research note issued Friday.

July platinum futures closed up $55.10 to $2,132 an ounce, and ended the week more than 1.4% higher. June palladium rose $12.70 to finish at $453.30 an ounce. July copper futures rallied 9 cents, or 2.4%, to close at $3.83 a pound -- up almost 3% for the week.

July silver futures rose 28 cents to close at $16.96 an ounce. The contract was up just 0.3% for the week.

"Silver has stronger fundamentals than gold," said O'Byrne.

He pointed out that "all the gold that was in existence in 1980 is still in existence," but some of the silver since then has been used in electronic applications.

And because the silver is used in minute amounts for those applications, it doesn't come back into the system, he explained.