Gold hits new record above 1,320 dollars

1st October 2010, Comments 0 comments

The price of gold hit a fresh record high above 1,320 dollars per ounce here on Friday, as the precious metal was energised by the weak dollar after disappointing US economic data.

Gold surged to an all-time pinnacle at 1,320.70 dollars per ounce on the London Bullion Market at about 1410 GMT.

The latest record-breaking move helped push silver to 22.15 dollars per ounce, which was last seen in September 1980.

The euro leapt to 1.3778 dollars in afternoon deals, touching the highest level since March 17, after data showed that US manufacturing activity grew more weakly than predicted in September.

The struggling US unit makes the dollar-priced metal cheaper for buyers using stronger currencies and so tends to stimulate demand and prices.

The Institute of Supply Management said its purchasing managers index on economic activity in the manufacturing sector rose to 54.4 percent in September, the 14th consecutive month of expansion.

However, the growth was worse than the 55.0 percent rise expected by most analysts and was down from a 56.3 percent reading in August.

"Data like the US manufacturing index coming in worse than expected only adds to the fears of further problems in the United States and adds to gold's appeal," said dealer Rajesh Patel at trading firm Spread Co.

Gold had already struck historic heights in earlier deals on Friday, as the dollar was also weighed down by expectations of more US stimulus spending by the US Federal Reserve.

The dollar has faced strong selling pressure ever since the Fed hinted last month at more spending if the tepid US economic recovery cools further.

"It's the expectation of further quantitative easing (QE) from the US Federal Reserve that continues to undermine the dollar and lift the single currency," said GFT analyst David Morrison.

Morrison noted that "QE involves the creation of new dollars by the Fed, which are introduced into the system through the purchase of Treasuries (bonds), mortgage-backed securities and perhaps other assets.

"By creating these fresh dollars, the Fed dilutes the purchasing power of the existing dollars, devaluing the currency."

Both gold and silver have soared by more than 30 percent in value over the past year, as the pair also benefited from investors seeking a safe-haven in times of economic uncertainty.

"It's the same old story for gold again today," added Patel on Friday.

"New highs are being reached on a daily basis with hedge fund and momentum buying adding to the general fear the Fed will start to introduce some form of QE at its next meeting in November.

"This is continuing to pressure a very weak dollar, helping drive gold higher. We could easily see 1,500 dollars reached by Christmas at this rate."

© 2010 AFP

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