NEARBY gold futures extended their record high above $US1000 an ounce today and the most-active contract pushed toward its own all-time peak, supported by continued US dollar weakness and technical momentum.
Inflation-hedge buying on lingering enthusiasm following yesterday's comments by Federal Reserve chairman Ben Bernanke that the recession was likely over also boosted gold.
Market participants were selling the US dollar and buying the metal in anticipation of higher consumer and producer prices down the road.
Most-active December gold rose $US13.90 on the Comex division of the New York Mercantile Exchange to settle at $US1020.20 an ounce, its fourth consecutive close in four-digit territory.
Meanwhile, thinly traded nearby September futures hit an intraday high of $US1019.80, surpassing the all-time front-month high of $US1014.60, set in March 2008. The most-active futures record of $US1033.90 was also set that month.
Positive price sentiment is building as front-month futures continue their longest-ever streak of days above $US1000, with today marking the first day nearby prices didn't spend any time below that level.
KEY COMMODITY PRICES: oil, gold, base metals, livestock and wheat
With the Fed likely to leave interest rates alone for the time being and participants seeing more of an economic recovery, they are buying gold in anticipation of rising inflation, said Michael Gross, broker and futures analyst with OptionSellers.com.
"People are buying gold to get out of the US dollar," said Andrew Montano, director of precious metals at Scotia Mocatta.
The US dollar slipped against its major rivals in the New York session after a fresh show of strength in US manufacturing buoyed stocks and encouraged sellers of low-yielding assets. Shortly after gold closed, the ICE Futures US dollar index was down 0.272 point.
"We're seeing a lot of problems with the dollar," a trader said.
Gold is often bought and sold inversely with the US dollar since the metal is considered a US dollar hedge and, more broadly, an alternative currency. Some participants also believe the metal will hold its value more strongly than other assets in times of rising producer and consumer prices.
However, the rally is coming amid stagnating gold exchange-traded fund buying and poor jewellery demand from India, the world's largest buyer of the metal for jewellery. Mine supply is also on the rise.
"It is taking place amid really poor fundamentals," Kitco Metals analyst Jon Nadler said. "That's why I'm ready to call it a bubble."
Rather, Mr Nadler said speculative funds -- which primarily trade futures for profit rather than obtaining physical product -- were behind the rally as the US dollar weakened and participants anticipated rising inflation, despite current data.
The latest data showed the US consumer-price index rose 0.4 per cent in August. Core CPI, which excludes food and energy prices, increased 0.1 per cent, as expected.
Despite the monthly increase in the overall index, consumer prices were down 1.5 per cent compared to one year ago.
Yesterday, data showed the US producer price index for finished goods rose 1.7 per cent on a seasonally adjusted basis in August, after falling 0.9 per cent in July. Last month's increase was bigger than the 1 per cent gain predicted by economists. However, PPI was still down 4.3 per cent from August 2008.
Meanwhile, the gap between yields on 10-year inflation-linked Treasury securities and nominal bonds, known as the breakeven rate, stood at 1.86 percentage points, a sign that investors expect the inflation rate to average 1.86 per cent over the period -- in line with the Fed's preferred core inflation rate of around 2 per cent. Five-year breakevens stood at 1.37 points, implying an even lower inflation rate.
That contrasts with consumers' inflation expectations, however: last Friday's University of Michigan sentiment survey showed five-year inflation expectations at 2.8 per cent.
"Inflation-anticipatory dollar-selling has been the pivot point around which the current rallies have orbited," Mr Nadler said.
The metal is continuing its technical breakout after breaching resistance around the $US990 level, the trader said.
Most-active December gold futures on the Comex division of the New York Mercantile Exchange last week breached $US1000 for the first time in six months. Previously, the contract topped $US1000 and subsequently fell back in March and July 2008 and again in February.
"You're seeing some follow-through buying now that gold is holding $US1000," said Carlos Sanchez, associate director of research with CPM Group.
