Gold Rises Above $1,500 to a Record on Slumping Dollar, Inflation Concern

Gold futures set another record this month this time breaking the $1,500 barrier. Silver also set records now breaking the $45 barrier for the first time since 1980.

By Pham-Duy Nguyen
Apr 20, 2011 8:51 AM MT
BLOOMBERG

Gold futures rose to a record for the ninth time this month as a weakening dollar boosted investment demand for the precious metal as an alternative asset. Silver topped $45 an ounce for the first time since 1980.

Gold reached $1,506.50 an ounce in New York as the dollar slipped as much as 1 percent against a basket of six major currencies to trade at a 16-month low. Before today, gold rose 32 percent in the past year as the dollar fell 7.4 percent. Earlier this week, Standard & Poor’s revised its long-term outlook for U.S. debt to negative from stable.

“For the dollar, the S&P statement was like getting kicked when you’re already down,” said Matt Zeman, a senior market strategist at Kingsview Financial in Chicago. “The dollar is losing its status as the king of the hill, and gold is looking to take its place.”

Gold futures for June delivery rose $11.30, or 0.8 percent, to $1,506.40 at 11:47 a.m. on the Comex in New York. The most- active contract has posted records for four straight days.

Gold for immediate delivery in London rose as much as 0.6 percent, to a record $1,506.03 an ounce.

The Treasury Department has projected that the government will reach the $14.3 trillion debt-ceiling limit no later than May 16 and run out of options for avoiding default by early July.

“As the numbers show, the debt cannot be repaid without dollar debasement, so people are warming up to the idea of hoarding gold,” Zeman said.

Commodity Inflation

Gold also gained on demand for an inflation hedge. The Thomson Reuters/Jefferies CRB Index of 19 commodities rose as much as 1.5 percent. A U.S. gauge of traders’ inflation expectations approached the highest level since 2008.

“The dollar has lost ground to its major counterparts,” James Moore, an analyst at TheBullionDesk.com in London, said in a report to clients. “The mix of inflation, currency debasement, euro-zone debt and Middle East and North African unrest continues to fuel investment demand.”

The difference between yields on U.S. 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for inflation, today widened to as much as 2.66 percentage points. The spread reached 2.67 percentage points on April 11, the most in three years.

Silver Surges

Silver futures for May delivery rose $1.282, or 2.9 percent, to $45.195 on the Comex. Earlier, the price touched $45.265, the highest since January 1980, the year futures reached a record $50.35.

An ounce of gold bought as little as 33.59 ounces of silver in London today, the smallest ratio since August 1983, data compiled by Bloomberg show.

“The metals are being led by silver,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. “You’ve got a parabolic market forming. The general opinion is that silver is undervalued, and that feeds the rally.”

Palladium futures for June delivery rose $30.15, or 4.1 percent, to $761.25 an ounce on the New York Mercantile Exchange. Platinum futures for July delivery rose $33.70, or 1.9 percent, to $1,805 an ounce.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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