Gold rallies to new high, eyes $1,300

By Alix Steel, TheStreet

Updated at 4:12 p.m. ET

Gold prices hit record highs Thursday as inflation fears once again jump-started buying of the haven asset.

Gold for December delivery settled $5.10 higher to $1,273.90 an ounce at the Comex division of the New York Mercantile Exchange. Gold Thursday traded as high as $1,279.50 -- a new all-time intraday record -- and as low as $1,266.10.

The U.S. dollar index was losing 0.3% to $81.22, while the euro was adding 0.5% to 1.31 against the dollar. The spot gold price was rising more than $6, according to Kitco's gold index.

Stocks made more modest gains, as the Dow Jones Industrial Average ($INDU) gained 22 points to 10,595, the S&P 500 ($INX) was flat at 1,125, and the Nasdaq ($COMPX) finished up 2 points to 2,303.

Investors piled into gold again as worries surfaced over inflation all over the globe. The core Producer Price Index in the U.S. rose unexpectedly to 0.4% in August.

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The data came after news that the Reserve Bank of India increased its repo rate and reverse repo rate to 6% and 5%, respectively; the latter was higher than expected. The central bank will now charge more for short-term loans it makes to commercial banks and increase the amount it will pay for loans from commercial banks.

The end result is to take money out of circulation. The hope is that the commercial banks will borrow less and store more money with the Reserve Bank to take advantage of better interest rates. Gold is the go-to investment when inflation fears spike, because gold is a currency that retains some value when paper money weakens.

The Reserve Bank of India's move comes two days after the U.K's. higher-than-expected inflation reading and a day before the U.S. core Consumer Price Index report, which will be another inflation indicator for the U.S. The index rose 0.1% in July, and no change is expected for August.

There have been rumors that the Federal Reserve will buy more government bonds, effectively lending more money to the U.S. government. Although the central bank governors are reportedly struggling for a consensus, any hints of money printing could trigger another surge into gold.

"What you're seeing is widespread belief that the central bank will engage in widespread additional quantitative easing," said Brian Kelleher, senior vice president of ETF Securities. "So investors are turning to gold as a way to protect against the falling value of the U.S. dollar and other fiat currencies."

The uncertainty in the currency market is also helping boost gold prices. The Bank of Japan has been trying to depreciate its currency to increase exports and help the country make more money. Despite Japan's best efforts, however, the yen was rising 0.23% against the dollar.

There are also questions as to whether China will make even more efforts to slow growth and cool the mortgage market, like forcing banks to raise the amount of money they hold in their reserves. The general mood of uncertainty makes gold an even more attractive asset.

Rob McEwen, the CEO of U.S. Gold Corp (UXG), believes that gold will hit $5,000 but that there will be consolidations along the way. "The trend is up. . . . (But) I expect the volatility in the gold price to become greater." Big price spikes are typically followed by selling to cash in on the profits.

The popular gold exchange-traded fund SPDR Gold Shares (GLD) offloaded almost 4 tons Wednesday as investors took advantage of record-high prices. McEwen says recent $30 daily moves could increase to $100 price swings. "For most people looking at gold, I recommend that they become patient. They have to look at gold as money. . . . It's an alternative to a euro or a yen or a dollar."

Silver prices climbed 20 cents to settle at $20.77 per ounce, another recent high, while copper closed up 3 cents to $3.49 per pound.

Gold mining stocks, a risky but sometimes more profitable way to buy gold, were mostly rising with gold Thursday. Barrick Gold (ABX) closed up 2.1% to $45.93 and Newmont Mining (NEM) was gained 0.5% to $63.22. Randgold Resources (GOLD) closed 0.6% higher at $97.89, and AngloGold Ashanti (AU) added 0.7% to finish at $44.81.

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