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Gold Rally on Record Oil
By Polya Lesova

Gold futures rallied 2% Wednesday, as oil's surge to a new all-time record and weakness in the U.S. dollar boosted demand for the precious metal.

Gold for June delivery soared $19.50 to finish at $937.50 an ounce on the New York Mercantile Exchange.
"Crude surging and the drop in the dollar are creating the rallying cry for gold today," said Burton Schlichter, director of trading at New World Trading.

The surprising drop in crude inventories "has pushed crude over the old March highs, which in return is giving gold a boost," he said. "If crude continues to surge, gold will go along for the ride."

'Crude surging and the drop in the dollar are creating the rallying cry for gold today.'
— Burton Schlichter, New World Trading

Crude-oil futures rallied to a new record of $112.21 a barrel Wednesday after government data showed that crude supplies declined by 3.2 million barrels during the week ended April 4. Analysts surveyed by Platts had been looking for an increase of 2.7 million barrels.

Crude for May delivery rose $2.37, or 2.2%, to close at $110.87 a barrel.

"The backdrop of economic fears in the U.S., energy-related inflationary pressures and ongoing credit issues continues to draw investment interest from those looking longer term," said James Moore, an analyst at TheBullionDesk.com, in a research note.

The dollar extended losses against the yen and the euro as stocks withered on Wall Street and investors awaited a policy decision from the European Central Bank. The dollar index, which tracks the performance of the greenback against a basket of currencies, dipped 0.7% to 71.79. See Currencies.

The European Central Bank is expected to hold its key rate steady at 4%, but maintain its focus on price stability and worries about inflation.

On Tuesday, gold fell $8.80 an ounce. The International Monetary Fund said it would seek approval to sell more than 14.2 million ounces of its gold reserves, currently valued at more than $13 billion. See full story.

GFMS sees $1,100 gold possible this year
The price of gold can very well reach $1,100 an ounce this year or early 2009, London-based consultancy GFMS Ltd. said in its latest survey of the gold market.

While gold, along with other metals and overall commodities, have experienced a correction in prices in recent weeks, GFMS expects the ongoing credit crisis to continue fueling investment demand.

"We weren't at all surprised that the market saw a hefty correction in the last few weeks, as the speed of the earlier gains looked a little unsustainable," said Philip Klapwijk, executive chairman of GFMS, in the report issued Wednesday.

"However, we don't think current hesitancy means it's game over for the rally," Klapwijk said.

Other metals futures also gained on the Nymex Wednesday. May silver futures surged 49 cents to end at $18.20 an ounce and July platinum futures rose $15 at $2,044.60 an ounce. June palladium gained $5.80 at $463.20 an ounce.

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