By Steven Swindells and James Regan
LONDON/SYDNEY (Reuters) - Gold raced to its highest price in nearly six years on Thursday as increasing fears of war in Iraq lured investors to the precious metal.
Often a haven in times of trouble, gold has soared around 25 percent this year, spurred by fears of conflict in the Middle East, a weaker dollar, falling equity markets and rising oil prices, making it one of the best performing financial assets.
"Gold is on fire. It's all about fears and liquidity...there is enormous appetite out there as alternative investment opportunities are waning," said Andy Maag, metals analyst at UBS Warburg.
Bullion was set or "fixed" in the London morning session at $345.75 a troy ounce, its firmest fix level since May 1997 and up from the previous fix of $338.00.
The latest surge came as Washington prepared to issue its verdict on the 12,000-page Iraqi arms declaration.
Secretary of State Colin Powell was expected to say on Thursday that Iraq's weapons declaration contained omissions that amount to a violation of a U.N. Security Council disarmament resolution, U.S. officials said.
But as the chief U.N. weapons inspector prepared to brief the Security Council on Baghdad's weapons dossier, it remained unclear whether the United States would declare Iraq to be in "material breach" of the resolution.
Such a declaration could set the stage for a military attack but U.S. officials insisted on Wednesday that this would not be an immediate trigger for war.
At one point in hectic Asian trading on Thursday spot gold
"The dollar looking set to trade lower, the threat of terror attacks in the U.S. and UK and the possibility of another Gulf War will make the market very nervous for the next few months and give the yellow metal the potential to make further gains," said James Moore, metals analyst at TheBulliondesk.com.
"I think $355 will be some kind of resistance level, but above there it clear water till around $420," Moore said.
PROSPECTOR JOY
Shares of leading mining companies in Australia, South
Africa <.JGLDX> to Britain
"I'm ecstatic," said Ray Wright, operator of the Daisy Milan gold mine in the Australian outback.
In Kalgoorlie, the center of the western Australia gold mining industry, bar owner Ashok Parekh said the gold rally had led to a surge in business for his Exchange Hotel pub as prospectors cash in their new wealth.
"The skimpies will be jumping for joy," he said, referring to the bar's scantily clad waitresses.
Gold was quoted at $345.75/346.75 an ounce at 1040 GMT, off the session high but still some $3 higher than New York closing levels on Wednesday as investors took profits after the rise.
In Japan, Tokyo gold futures blasted to 5-1/2-year highs and all yen-based gold contracts <0#JAU:> except the new December 2003 benchmark finished limit-up at lifetime highs in heavy turnover.
CRUCIAL JUNCTURE
"It is safe to say that the coming weeks are the most important for the gold market than any period of the last five years at least, and possibly the last 20 years," said London-based analysts at J.P. Morgan in a report.
"Gold will either stall at this major $350 resistance area, signalling that the three-year range and the 15-year downtrend is intact, or will blast higher, sustaining its recent gains," they said.
Gold has a history of price volatility. It is still well below a record high of $850 an ounce fetched in early 1980 and within 24 hours of the start of the Gulf War in January 1991, it fell more than $25 from just above $400.
The move into gold has happened as the dollar fell to three-year lows against the euro and as oil prices surged above $30 a barrel to three-month highs as a strike crippled the Venezuelan oil industry.
Rising oil prices are an early indication of looming inflation, which also attracts investors to gold as an alternative to stocks and cash.
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