Gold tops $1,380 before paring gains

Prices continue to set record highs as the dollar weakens in anticipation of further monetary easing.

By TheStreet Staff Oct 14, 2010 10:16AM

thestreetBy Alix Steel, TheStreet

 

Updated at 4:13 p.m. ET

 

Gold prices hit new intraday highs Thursday as investors piled into the metal while the U.S. dollar continued to weaken.

 

Gold for December delivery added $7.10 to $1,377.60 an ounce at the Comex division of the New York Mercantile Exchange. Gold today traded as high as $1,388.10 -- an all-time record -- and as low as $1,371.10.

 

The U.S. dollar index continued its decline, losing 0.6% to $76.60, while the euro was gaining 0.8% to $1.41 vs. the dollar. The spot gold price was adding $5.80, according to Kitco's gold index.

 

Stocks closed lower, though the Dow Jones Industrial Average ($INDU) recovered much of its early losses to finish just 1.5 points off at 11,095. The S&P 500 ($INX) lost 4 points, or 0.4%, to finish at 1,174, and the Nasdaq ($COMPX) ended the day down 6 points, or 0.2%, at 2,435.

 

Gold prices jumped in early trading but then pared some of their initial gains as investors took profits at record prices. Bullish gold investors are looking at $1,400 an ounce as the next resistance area as long as the U.S. dollar stays weak.

The greenback was getting pounded Thursday after Singapore said it would let its currency trade in a wider range in order to let it appreciate in value and combat slowing growth. The news sent the Singapore dollar higher against the U.S. currency.

 

The dollar has already come under significant pressure as investors bet on the chance that the Federal Reserve will announce more monetary easing at its next policy-setting meeting in November. More dollars in circulation would make the currency worth less, and investors are piling into gold as an alternative form of money.

 

Gold is viewed as a safer type of money, since it cannot be printed and the price cannot be manipulated as easily as paper currencies. Prices have risen 5.4% in October as investors have jumped into the asset.

 

Wednesday's double-digit rally, which was extending into Thursday, suggests that big buyers are entering the gold market and that, despite some periodic selling, gold prices will head higher for the short term.

 

"For now, short-term investor interest remains supportive for gold prices testing new highs," says Suki Cooper, an analyst at Barclays Capital, "with our technical analysts noting gold in USD terms need a sustained break of $1,368 an ounce."

 

James Moore, an analyst at thebulliondesk.com, says that gold prices do look top-heavy but that continued pressure on the U.S. dollar and longer-term inflation resulting from further quantitative easing by the Fed could push prices to $1,420 an ounce.

 

Scott Redler, chief strategic officer at T3Live.com, was buying the SPDR Gold Shares (GLD) when gold prices broke out Tuesday and Wednesday and is now selling some at these record levels. "I tier in and out -- will book some quick profits but stay long."

 

Gold prices were also finding support Thursday from a weaker-than-expected initial jobless claims report for the week ended Oct. 8. Claims rose by 13,000. The core producer price index also rose 0.1%, which was in line with expectations. The number is viewed as an inflation indicator along with the core Consumer Price Index, which is set to be released Friday.

 

Inflation at low levels might also result in the Fed's raising its long-term inflation target, currently between 1.5% to 2%. Such a move would mean more money printing over an extended period. Although Fed Chairman Ben Bernanke has said he is opposed to this move, further low inflation readings and slow growth might force his hand.

 

Long-term money printing is good for gold prices as investors move into the hard currency. Bernanke will speak Friday morning at a conference sponsored by the Federal Reserve Bank of Boston on monetary policy in a low-inflation environment. Investors will look for clues on the details of QE2.

 

Silver prices surged to a 30-year high, adding 50 cents to settle at $24.44 per ounce, while copper was down 1 cent at $3.81 per pound. Silver is regarded as the poor man's gold and is also a form of money that can retain more value over paper currencies.

 

Gold mining stocks, a risky but sometimes more profitable way to invest in gold, closed mostly lower Thursday. Barrick Gold (ABX) fell 1% to $48.74, Newmont Mining (NEM) lost 1% to close at $62.54, and AngloGold Ashanti (AU) dropped 1.4% to $47.45. Rangold Resources (GOLD), however, gained 1.7% to finish at $105.12.

 

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