BLBG: Gold Rises to Record as Dollar’s Slump Spurs Investment Demand
Gold futures rose to a record as the slumping dollar spurred demand for the precious metal as an alternative asset.
The metal reached an all-time high of $1,069.70 an ounce in New York, surpassing a record on Oct. 8. Gold is on course for a ninth straight annual gain. The price has advanced 20 percent this year, while the dollar has dropped 6.8 percent against a basket of six major currencies, touching a 14-month low today.
“There’s lots of concern about the weakness in the dollar, and this has been driving gold,” said Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany.
Gold futures for December delivery gained $7.50, or 0.7 percent, to $1,065 on the Comex division of the New York Mercantile Exchange. The price has closed above $1,000 every session this month.
The metal may benefit as central banks worldwide diversify away from the dollar, analysts said. Nations reporting currency holdings put 63 percent of the new cash into euros and yen in April, May and June, Barclays Capital data show. China in April said it purchased 454 metric tons of gold from 2003 to 2009, according to data from the producer-funded World Gold Council.
China has the sixth-largest gold holdings, after the U.S., Germany, the International Monetary Fund, Italy and France. Only 1.9 percent of China’s foreign-currency reserves are in gold.
“The tremendous perception that the dollar will continue to weaken is going to drive gold higher,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “China is nervous and continues to be nervous about the dollar.”
Record U.S. Debt
President Barack Obama has increased U.S. marketable debt to a record as he borrows to reignite economic growth. That has boosted speculation that increased money supply will debase the currency and spur inflation.
The Federal Reserve has cut its main interest rate almost to zero and backed asset purchases and credit programs to combat the recession. Chairman Ben S. Bernanke is leading plans to buy mortgage-backed securities, federal agency debt and Treasuries.
“The fear that central bank exit strategies will come too late to prevent inflation is giving support to gold,” Fertig of Quantitative Commodity Research said.
U.S. consumer prices will increase 1 percent this quarter and 1.9 percent and 1.8 percent in the following two quarters, respectively, according to the median estimate of 66 economists surveyed by Bloomberg.
Crude-oil futures, used by some investors as an inflation guide, rose today to the highest in seven weeks. The price has jumped 66 percent this year.
The 14-day relative-strength index for gold futures was above 70 for the second straight day, a signal that prices may retreat in the short term.
“The market is a little long,” said Tom Hartmann, an analyst at AltaVest Worldwide Trading LLC in Mission Viejo, California. “Gold could fall back to the low $1,020s and still be in a bullish trend.”
