By Pham-Duy Nguyen
Jan. 2 (Bloomberg) -- Gold rose, extending a seven-year rally to the highest price since 1980, as a weakening dollar and higher energy costs boosted demand for a hedge against inflation. Silver also gained.
Investors are pouring money into gold with energy and grains close to record highs and the dollar under pressure from the prospect of more cuts in U.S. borrowing costs. In 2007, gold climbed 31 percent as the dollar fell to an all-time low against the euro, and crude oil climbed to the highest ever.
``Gold is leading us into uncharted territory,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. ``Crude is making a run for $100, the dollar is headed lower, and geopolitical tensions are building. It's very possible gold can get to $1,000 this year.''
Gold futures for February delivery rose $12.10, or 1.4 percent, to $850.80 an ounce at 10:10 a.m. on the Comex division of the New York Mercantile Exchange. The metal earlier reached $852.30, the highest for a most-active contract since Jan. 21, 1980, the day futures reached a record $873.
Silver for March delivery gained 22.5 cents, or 1.5 percent, to $15.145 an ounce. The metal rose 15 percent last year.
Oil traded as high as $98.30 a barrel today, about $1 below its record. The dollar dropped against the euro.
The Federal Reserve has reduced the overnight lending rate three times since Sept. 18 from 5.25 percent to 4.25 percent on concern a housing slump will lead to a slowdown in the U.S. economy. The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities rose 22 percent in 2007.
Pakistan Elections
Pakistan pushed back elections to Feb. 18 that would have returned the nuclear-armed country to democracy after eight years of military rule. Opposition candidate Benazir Bhutto was assassinated on Dec. 27.
Crude oil rose after Nigerian militants killed 12 people in the southern oil city of Port Harcourt yesterday. Nigeria is Africa's biggest petroleum producer.
Investment in the StreetTracks Gold Trust, an exchange- traded fund backed by bullion, surged 39 percent last year to a record 628 metric tons.
``The move suggests that funds have made additional moves into bullion with Pakistan remaining on edge and investors nervous about financial markets,'' said Jon Nadler, an analyst at Kitco Minerals & Metals Inc. in Montreal.
Gold's gain last year was the biggest since 1979, when the price more than doubled after the Shah of Iran was overthrown, energy costs surged and the dollar slumped. The spot price of the metal climbed to a record $850 on Jan. 21, 1980, and traded as high as $848.65 today.
