Setting the Standard in Portfolio Protection

DGE Blog

Gold Prices Rise to Record as Demand Mounts for Alternative to Currencies

Gold futures rose to a record $1,375.70 an ounce amid mounting investor demand for the metal as an alternative to currencies. Silver extended a rally to the highest level since 1980.

Goldman Sachs Group Inc., UniCredit SpA and Citigroup Inc. have raised price forecasts as gold approached another record high. The dollar was down against a basket of six major currencies on speculation the Federal Reserve will ease monetary policy further to spur growth. Bullion has reached a record 15 times in the past month.

“Gold has become the world’s third reservable currency as all currencies seem intent upon racing each other downward,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. He advised clients to buy the metal.

Gold futures for December delivery climbed $25.40, or 1.9 percent, to $1,372.10 an ounce at 11:11 a.m. on the Comex in New York. The previous all-time high was $1,366 on Oct. 7.

Goldman Sachs forecast a price of $1,650 in 12 months. UniCredit analyst Jochen Hitzfeld in Munich raised his 2011 target to $1,500. Citigroup’s “short and medium term” forecast is $1,450.

“This momentum higher will attract investors to participate in the next move up,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland.

A Fed purchase of $500 billion of government securities would lead to lower interest rates, weighing on the dollar and aiding gold, Dincer said.

Treasury Purchases

In March, the central bank finished $1.7 trillion in purchases of Treasuries, mortgage-backed securities and housing agency bonds. The Fed has kept its benchmark lending rate at zero percent to 0.25 percent since December 2008.

Gold, which pays no interest, becomes a more attractive investment when borrowing costs decline. Before today, the metal rose 23 percent this year.

“Both gold and the dollar agree that Ben Bernanke will be victorious in his quest to foment a robust rate of inflation,” said Michael Pento, a senior economist at Euro Pacific Capital in New York.

Gold for immediate delivery reached a record $1,374.35.

Investors should be prepared for a correction in prices, Deutsche Bank analyst Adam Sieminski said in a report. The 14- day relative-strength index for gold futures has been above 70 since Sept. 22, a signal to some traders that prices may decline.

Investors ‘Wary’

“Investors need to be wary of a short-term correction in the U.S. dollar during October and with it, a possible setback to recent price advances” in gold, Sieminski said. “We view any correction in gold prices over the next three weeks as yet another buying opportunity. The next hazard for bullish gold investors will be the first four weeks of next year, which has seen the dollar strengthen nine out of the last 12 years.”

Silver futures for December delivery rose 67.8 cents, or 2.9 percent, to $23.825 an ounce. Earlier, the price reached $23.885, the highest level since September 1980.

Platinum futures for January delivery gained $29, or 1.7 percent, to $1,712.30 an ounce on the New York Mercantile Exchange.

Palladium futures for December delivery climbed $14.30, or 2.5 percent, to $594.95 an ounce.

By Claudia Carpenter and Pham-Duy Nguyen – Oct 13, 2010 7:14 AM MT

Leave a Comment