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Gold Surges on Weak Dollar |
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Monday, 23 November 2009 |
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Gold futures rallied Monday for a seventh session, hitting a new high above $1,170 an ounce as the dollar fell and war games in Iran boosted global tensions, increasing gold's appeal as a safe-haven investment.
In Monday's trading, gold for December delivery, the most actively traded contract, climbed as high as $1,174 an ounce. It ended up $17.90, or 1.6%, at $1,164.70 an ounce.
Pushing gold higher, the dollar declined against its rivals after Federal Reserve Bank of St. Louis President James Bullard said Sunday that the U.S. central bank should continue buying mortgage-backed securities and other assets longer than currently planned.
DXY which tracks the performance of the greenback against a basket of other major currencies, fell 0.8% to 75.061 in recent trading.
Bullard's comments are "the main reason why the dollar is under pressure this morning," and that in turn is boosting gold prices, said Carsten Fritsch, commodities analyst at Commerzbank AG.
"It's an indication that a Fed rate hike may come later than expected," Fritsch said. "And also rising money supply undermines the dollar."
Gold and the dollar have a strong inverse relationship: When the dollar falls, gold prices tend to rise.
Holdings in SPDR Gold Shares, the biggest gold exchange-traded fund, stood at 1,117.49 metric tons as of Friday.
Falling back to $800?
Despite gold's recent rally, some analysts said prices could see a major correction in the next few months.
Gold futures could fall below $1,000 an ounce by year-end and fall as low as $800 an ounce next year, said U.K. forecasting firm Capital Economics.
Economist Julian Jessop attributed bullion's recent surge to a desire for insurance against the risks of inflationary bubbles in other assets and a U.S. dollar collapse.
"These risks are probably much lower than generally supposed," he wrote, adding his forecast depends "crucially" on at least a partial recovery for the U.S. dollar.
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