Gold tops $1,300 an ounce

After a steady push upward, prices break through the psychological barrier to set yet another intraday record.

By TheStreet Staff Sep 24, 2010 8:22AM

thestreetBy Alix Steel, TheStreet


Updated at 4:22 p.m. ET


Gold prices broke $1,300 an ounce Friday as a weak dollar and momentum buying pushed the metal past the psychologically important level.


Gold for December delivery settled $1.80 higher to $1,298.10 an ounce at the Comex division of the New York Mercantile Exchange. Gold Friday traded as high as $1,301.60 and as low as $1,290.60.


The U.S. dollar index was losing 0.7% to $79.42, while the euro was rallying 1.2% to $1.35 against the dollar. The spot gold price today was adding $4.80, according to Kitco's gold index.


Overshadowing gold's milestone was a 2% rally in U.S. stocks that sent the Dow Jones Industrial Average ($INDU) up 198 points, or 1.9%, to 10,860. The S&P 500 ($INX) was up 24 points, or 2.1%, to 1,149, and the Nasdaq ($COMPX) was gaining 54 points, or 2.3%, to 2,381. 


Gold prices broke $1,300 as a stronger euro pushed the U.S. dollar lower. The euro was rallying after a better-than-expected second-quarter GDP reading from France and a positive business confidence number out of Germany.

Gold is priced in dollars, so a weaker dollar makes gold cheaper to buy in other currencies. A devalued dollar also makes gold more appealing as a haven investment, as a more reliable form of money.


The expectation for the past week among gold analysts was that speculative fund buying was going to push gold past $1,300. Although the number looks sexy, in the end it's just a number.


"Round numbers are generally more of a psychological impact," said Jon Nadler, a senior analyst at, rather than a fundamental shift for gold prices.


In fact, Nadler argues that "given the reading of the tea leaves (by speculative funds) into what the Fed statement meant (in their minds)," gold should have hit $1,320 midweek, which "leaves us with options expiration (next week) as the culprit."


The Federal Reserve at its most recent FOMC meeting Tuesday said it is "prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."


The Fed still expects growth for the U.S. economy for 2010 to be between 3% and 3.5%. If it lowers its expectations, that would set the stage for more money printing to increase inflation and pump more money into the banking system.


The August core Consumer Price Index is just up 0.9% from year-earlier levels, while the Fed's inflation ceiling on the low end is 1.5%, leaving a lot more "safe" room for expansion in monetary policy.


Gold prices saw a double-digit rally Wednesday as traders digested the Fed news, but they weren't able to break $1,300 until this morning. The popular gold ETF SPDR Gold Shares (GLD) currently holds 1,301.4 tons, slightly lower than its June record high of 1,320 tons, which was hit as gold prices touched their then intraday high of $1,266 an ounce.


Thirteen-hundred-dollar gold is a hot headline, but the fact of the matter is that most investors don't own gold in their portfolios, and there is still time to buy. Most analysts think the most recent rally is ready for a breather and gold could see some short-term selling or even a mild correction.


The record high price also means that physical demand out of emerging-market countries like India will wane. Indian consumers are very price-sensitive, and, according to recent reports, physical buying increases the closer gold gets to $1,200 but buying tapers off as prices rise.


The trend for jewelry buying is that consumers slowly have to get comfortable with higher prices. They have over the past 10 years as prices have risen from $282 to $1,300, but their buying lags fund buying. Investment demand accounts for only 25% of total global gold demand, while jewelry demand is still 60%, so gold needs strength from both areas to move higher.


"There's still a lot of opportunities there," says Phil Streible, a senior market strategist at Lind-Waldock. "I think that any kind of nibbling away at some options and some futures below $1,300, if you can get the opportunity, . . . pick on a correction, definitely consider that."


Silver prices were also hitting record highs, their best since 1980. Silver, considered the poor man's gold, has also become a favorite of investors looking to diversify into precious metals. Prices settled 19 cents higher at $21.40 per ounce, while copper closed up 3 cents at $3.62 per pound


Despite gold's gains and a rally in the equity markets, gold mining stocks, a risky but sometimes more profitable way to invest in gold, closed mixed on Friday.


Barrick Gold (ABX) lost 0.7% to $46.37 and Newmont Mining (NEM) fell 0.7% to close at $63.40. Randgold Resources (GOLD) gained 0.9% to $102.23, while AngloGold Ashanti (AU) finished 1.3% lower at $45.24.


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