Gold hits another record high

Prices rallied past $1,370 as the US dollar weakened.

By TheStreet Staff Oct 13, 2010 10:05AM

metal and mining news from the streetBy Alix Steel, TheStreet

 

Updated at 3:26 p.m. ET

 

Gold prices settled at new highs Wednesday as investors bought the metal as protection against a weakening U.S. dollar.

 

Gold for December delivery soared $23.80 to settle at $1,370.50 an ounce at the Comex division of the New York Mercantile Exchange. Gold today traded as high as $1,375.70 and as low as $1,350.

 

The U.S. dollar index was slipping 0.4% to $77.09, while the euro was up 0.3% to $1.40 vs. the dollar. The spot gold price was up $19.80, according to Kitco's gold index.

 

Gold prices were rallying after the minutes of the last Federal Reserve policy-setting meeting signaled that the central bank is ready to jump-start another stimulus program. The Fed governors downgraded growth prospects for the U.S. economy for the rest of 2010 and 2011.

Although there was no consensus, many participants agreed that "it would be appropriate to provide additional monetary policy accommodation" if the unemployment and inflation rates stayed low. The Department of Labor will release key inflation indicators -- September's core Producer Price Index and Consumer Price Index -- over the next two days, and both are expected to remain unchanged.

 

Gold prices had been struggling as investors took advantage of high prices to book profits, but after the Fed minutes were released, gold started to pare its losses and has rallied near its record high. Gold has yet to beat its Oct. 7 intraday high of $1,366 an ounce.

 

More accommodating measures mean the Fed will expand its balance sheet by printing more money to buy more government debt and to literally pump more money into the system. As the Fed prints money, the dollar loses value -- which is good for gold prices.

 

The dollar-backed commodity becomes cheaper to buy in other currencies, which rise as the dollar loses steam. In addition, the global currency war that is brewing as countries rush to lower their currency values to increase export growth highlights how frail paper money is, while gold becomes a more attractive place to protect wealth.

 

Currency issues and the race to debase might see an additional push Wednesday after China reported that September exports rose 25.1%, as its currency stayed low despite the country's announcement in June that it would let the yuan rise in value.

 

Wednesday's rally in gold might also trigger technical buying from traders who sold at record prices and are now looking to jump back in. Scott Redler, chief strategic officer at T3Live.com, had recently gotten out of his macro longs in gold; he trades the SPDR Gold Shares (GLD), which is only the second time he has done that in the last 3.5 years.

 

"Now I'm flat gold and I feel naked," says Redler. "If we were to start to break above the $1,360 [area] then I'll get in for another momentum trade ... [gold prices are] starting to get violent ... the range is getting bigger and I do think if we get above $1,365 that next move is going to be even more violent."

 

Silver prices also shot up, gaining 75 cents, or 3.2%,  to settle at $23.93 per ounce. Copper added 4 cents to close at $3.82 per pound.

 

Gold mining stocks, a risky but sometimes more profitable way to buy gold, were rallying Wednesday. Barrick Gold (ABX) was up 2% to $49.42 while Newmont Mining (NEM) was gaining 2.2% at $63.34. Goldcorp (GG) was adding 3.6% at $45.54, and Agnico-Eagle (AEM) was up 3.4% at $74.61.

 

Harmony Gold (HMY) was losing 0.1% to $11.40, a day after receiving downgrades from Morgan Stanley (MS) and Normura Securities.

 

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