Friday, October 9, 2009

Gold Taps Fresh Record Above $1,060

NEW YORK (MarketWatch) -- Gold futures climbed above $1,060 an ounce Thursday, marking a fresh record high for the third session in a row, as investment demand continued to rise and as the dollar weakened once more.

The gains appear likely to push the winning streak for the precious metal to five. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by physical gold, rose for a fourth straight session, reaching the highest level in three months.

Fostering the gains in gold, the dollar gave ground in currency trading, under renewed pressure as the European Central Bank and the Bank of England made no changes in their respective interest-rate policies.

Gold for October delivery rose as high as $1,060.40 an ounce, the loftiest level ever for a front-month contract. It was last up $16.30, or 1.6%, to stand at $1,059.60 on the Comex division of the New York Mercantile Exchange.

Gold for December delivery, the most actively traded contract, was up $14.40, or 1.4%, at $1,058.80 an ounce, modestly off its intraday high of $1,062.70.

"New records each day, as higher volume, higher moving averages, higher open interest and huge ETF demand from investors continue," said George Gero, a precious-metals trader for RBC Capital Markets. "ECB and BOE left rates at lows, cheap rates make it easy to hold gold for investors as they prepare for possible future inflation."

SPDR Gold Trust holdings reached 1,109.31 metric tons on Wednesday, up 8.8 metric tons from a day earlier. That's the highest level since July 13. "The fact that the gold price broke through the old high of March 2008 is obviously attracting financial investors to the gold market," said analysts at Commerzbank in a note.

If demand for gold ETFs continues to rise, "a further gold-price increase has to be expected, especially as short-term oriented market participants are likely to be jumping on the bandwagon."

'Top heavy' in the short term?

Some analysts questioned whether the rally in gold could continue, however. Christopher Ecclestone, mining strategist at Global Hunter Securities, said gold's strength was "like a feather being pushed up by the lightest of breezes. There is no substance to the rise."

Indeed, gold's performance in the euro, the British pound and other currencies has been lackluster compared to its rise in U.S. dollars, a trend suggesting that investors are more interested in bullion as a hedge against the greenback than global inflation. "The short-term outlook is again beginning to look top-heavy with gold vulnerable to a correction should the dollar recover," said James Moore, analyst at TheBullionDesk.com.

In foreign-exchange trading, the dollar index moved down 0.4% to 76.191, leaving the benchmark just slightly higher than the one-year low hit about two weeks ago. A weaker dollar typically pushes up dollar-denominated commodities prices. The European Central Bank, which sets monetary policy for the 16 nations that use the euro, left its key lending rate unchanged at a record low of 1%. The Bank of England did likewise, its key lending rate unchanged at a record-low 0.5%.

For now, "gold prices continue to trend higher, driven by the same factors as in previous days -- a weaker [U.S. dollar] and still-low bond yields," analysts at Credit Suisse wrote in a note to clients issued Thursday.

Also in metals trading, December silver futures rose 17 cents, or 1%, to $17.67 an ounce. October platinum gained $8.80, or 0.7%, to $1,329.30 an ounce, and December palladium rose $4.95, or 1.6%, to $319 an ounce. December copper added 8.85 cents to $2.868 a pound, a 3.2% advance.

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