<--$1000.00 Gold-->

[gavinmccallister]

New York - The price of gold rose to a fresh 25-year high on Thursday as investors sought a safe haven amid a weakening US dollar and worries over the West's confrontation with Iran.
The June gold contract rose as high as $712.25 an ounce in Asian trade.

After the Nymex closed, the Federal Reserve's policy-makers boosted interest rates by a quarter-point to 5%, as widely expected.

Lead investors away from gold

Raising US interest rates makes the dollar a more attractive investment, which can in turn lead investors away from gold. But the Fed's statement left open the possibility that it may pause in its tightening campaign, which would likely cause the dollar to fall.

Investors have driven up prices of the metal, considered a hedge against currency weakness, inflation and financial instability, after a recent tumble in the US dollar.

"It's a cocktail for positive stimuli for gold," said Nick Moore, global commodities analyst at ABN Amro in London. "You get the spillover of people buying into commodities, whether its copper, aluminum, soft commodities or precious medals. People are moving there."

Gold also has gained on anxiety over Iran's nuclear program, which the United States and other nations fear is a cover to develop nuclear weapons. The United Nations has threatened to impose sanctions if Iran doesn't give up its nuclear program, which Tehran says is purely to generate electricity.

"Concerns about the whole Iran-US problem and potential conflict there and/or lower supplies of oil out of Iran if it has sanctions imposed on it" are driving up the price, said James Thurtell, a commodities strategist at the Commonwealth Bank of Australia.

$1 000 not outrageous

Thurtell believes gold may go as high as $800 an ounce by year's end, while Moore said: "I think $1 000 is by no means an outrageous forecast."

A drop in the dollar is also a factor as "people think that perhaps the US rate hike cycle is drawing to a close," he said.

The general strength of the commodities market, with gains in metals such as silver and platinum, is also lifting gold prices.

John Meyer at Numis Securities attributed the latest gains for gold to economists in China recommending the country's central bank holds more gold.

China Gold News suggested that the country quadruple its gold reserves to better balance its foreign exchange reserves, which are now overwhelmingly held in US dollars, mostly Treasuries. It said bullion reserves account for 1.3% of China's foreign exchange reserves, less than the 3% to 5% seen in other countries.

The all-time record for gold was set in January 1980 when the metal hit $875 an ounce in a huge day-and-a-half surge. But it quickly fell back under $700.