For Gold, Everything's Coming Up Roses

Gold bugs' only problem on Monday was trying to determine which of a myriad of bullish factors best explain yet another move to fresh 25-year highs. The usual suspects -- inflation, geopolitical tensions, and a weak dollar -- were all present after a three-day weekend.

Most visibly, crude oil topped $70 a barrel amid heightened concerns about Iran's nuclear ambitions. Crude finished the session on a gain of $1.08 at $70.40 a barrel.

Gold for June delivery surged $18.70, or 3.1%, to $618.80 an ounce, off an earlier 25-year high at $619.30. Other metals followed gold's lead, with silver rising 51 cents to $13.36 an ounce, off a 22-year high of $13.38. Copper finished up 7.95 cents at $2.895 an ounce, after hitting yet another all-time high at $2.935.

Ali Larijani, Iran's National Security Council Secretary, said Western requests that Iran stop its nuclear-enrichment program are "illogical," according to Iranian news agency ISNA.

The standoff between Iran, the world's fourth-largest producer of crude oil, and Western countries has sparked concern over supply disruption. Crude oil prices are at levels unseen since last September when Hurricane Katrina disturbed Gulf Coast production.

Gold's surge so far this year has been fueled both by rising geopolitical tensions, as the precious metal serves as a safe haven, and by the inflationary pressures from surging energy prices, as gold also acts as a hedge against inflation.

Other metals have mostly followed gold's lead, but with their own twists. Silver has been surging even more amid expectations that a soon-to-be-launched exchange-traded fund (ETF) will boost demand for the metal. The fund, much like the streetTRACKS Gold (GLD:NYSE - commentary - research - Cramer's Take) ETF, should make investing in the commodity easier for retail investors.

Copper, meanwhile, has reached new highs amid continued signs of global economic growth.

China reported first-quarter GDP growth of 10.2% on Friday, which sent copper sharply higher while U.S. markets were closed, according to Nell Sloane, metals analyst at NSFutures.com. "It certainly feels like the flow of money toward all metals is accelerating," she wrote in her daily commentary.

Gold and metals, which are dollar-denominated, also received a boost Monday from dollar weakness. A weak greenback normally boosts the value of dollar-denominated commodities, as it takes more dollars to buy the same amount of goods.

The dollar index, which measures the U.S. currency vs. most key world currencies, fell 1% Monday. The drop came after a Wall Street Journal article on Friday suggested that the Federal Reserve is not committed to hiking interest rates beyond May 10.

Markets are also eagerly awaiting the release of the minutes from the Fed's March 28 meeting, due Tuesday, which might provide clues about the intentions of central bankers.

Gold bugs have long speculated that a sharp slowdown in the U.S. economy will weaken the dollar this year, further boosting the precious metal's value.

Those theories appeared validated after more bearish news from the U.S. housing market. The National Association of Home Builders said its housing market index dropped to 50 in April, its lowest level in four and a half years.

So far, the dollar has remained supported by the Fed's 15 successive rate hikes since June 2004. But once the Fed stops, the dollar will have to weaken to rebalance the soaring U.S. current account deficit, gold bugs believe.

What has kept the dollar afloat to date has been continued inflows of foreign capital into U.S. assets -- providing the "funding" of the current account deficit. On that front, the dollar received support on Monday after a report showed foreign investment into U.S. assets had increased in February.