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Gold Gains Above $1,320; US Policy in Focus

By: Reuters  Published: Friday, 1 Oct 2010 | 11:32 AM ET

Gold prices rallied to record highs above $1,320 an ounce on Friday as the dollar weakened further on soft U.S. manufacturing data, fueling interest in the precious metal as an alternative asset.

Spot gold [XAU=X  1315.95    10.70  (+0.82%)   ] was last bid around $1,318, against $1,305.25 late in New York on Thursday.

U.S. gold futures [GCZ0  1316.7    7.10  (+0.54%)   ] for December delivery last rose toward $1,319 an ounce.

Gold’s run to record highs is likely to maintain its current momentum for the rest of 2010, with a snap poll of analysts conducted by Reuters this week finding two out of three see prices above $1,350 by year-end.

Eleven out of the 21 analysts polled say they expected the precious metal to be trading between $1,350 and $1,400 an ounce by Dec. 31, while two respondents saw prices higher still.

“Continued concerns over the global economy and particularly the U.S. should keep interest in gold high,” said Michael Widmer, an analyst at Bank of America-Merrill Lynch in London.

Spot gold hit a series of record highs in late September and reached a new peak of $1,317.80 an ounce earlier on Friday, as concerns that the U.S. will further ease monetary policy to combat sluggish growth which has battered the dollar.

Analysts cited weakness in the currency, the prospect of further quantitative easing in the United States and elsewhere and central banks’ increased emphasis on holding gold as a reserve asset as reasons for the rally to continue.

“All the key factors that have driven gold higher remain in place, including demand for gold as an alternative asset, net central bank buying, currency debasement, economic uncertainty, sovereign debt risk, and general strength in commodities,” said Bill O’Neill, partner at U.S.-based Logic Advisors.

Three respondents to the poll, including Caroline Bain, an economist and senior commodities editor at the Economist Intelligence Unit, see gold prices holding in their current range between $1,300-1,350 an ounce until year-end.

“We believe that investor demand for gold will remain strong over the next couple of months because global interest rates will remain at ultra-low levels and because of uncertainty surrounding the prospects for growth next year,” she said.

Pressure Seen

O’Neill added that prices could come under pressure if heavy selling is seen by exchange-traded funds, which may potentially dump large quantities of metal onto the market. However, price dips in the past have not led to corresponding ETF selling.

Not everyone polled was bullish on gold, however. Three respondents to the poll — precious metals house Heraeus, U.S. bullion dealer Kitco and Commerzbank — expect prices to slip back below $1,250 an ounce by the end of December.

Two others, both based in Asia, expect the precious metal to correct back to a range between $1,250-1,300.

“Gold prices are likely to enter a correctional phase,” said Masayo Kondo, president of research firm Commodity Intelligence in Tokyo.

“Stocks are expected to recover from recent lows either on expectations for the Fed’s further easing or signs of economic improvement, while inflationary pressures remain low. “Also, funds are looking to take profits after the metal’s recent run-up,” he said.

Among other precious metals, silver [XAG=X  22.03    0.33  (+1.52%)   ] was last bid around $21.93 an ounce against $21.70.  Platinum was last near $1,670 an ounce against $1,651.15, while palladium last touched around $572 against $563.93.

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