NEW YORK Gold hit record highs on Thursday for the second time this week, as currency volatility and uncertainty about economic recovery prompted investors to pile into the alternative asset.
Investment demand propelled spot silver, often dubbed the poor man's gold, to just below $21 an ounce -- its loftiest level since March 2008 -- and extended that metal's winning streak to five days. COMEX silver open interest reached its highest since early 2008, before the economic crisis.
(Graphic: link.reuters.com/jap24p )
Peter Buchanan, senior economist at CIBC World Markets, said gold benefited from a drop in British retail sales and a weaker U.S. Philly Fed factory index, while a sharpened U.S. tone on China's currency increased foreign-exchange volatility.
"A week ago, people were dismissing double-dip recession fears following a solid U.S. payrolls report. Now, perhaps a few people are thinking: 'Not so fast!'," he said.
Analysts said sharp moves in currencies were bolstering gold's safe-haven appeal. On Wednesday, the dollar surged 3 percent against the yen after Japan intervened to weaken its currency for the first time in six years.
Spot gold fetched $1,274.80 an ounce at 4:01 p.m. EDT (2001 GMT), having set another record high at $1,277.70 in earlier trade. It closed at $1,265.65 an ounce on Wednesday.
Still, gold remained sharply below its inflation-adjusted all-time high above $2,200 an ounce.
(Graphic: link.reuters.com/gup24p )
A potential trigger for further gains in the metal may come from the U.S. Federal Reserve, which meets on September 21 and could announce further quantitative easing (QE) to stave off a slowdown in the world's largest economy.
"If the Fed says next week it is going to do more quantitative easing ... the inflation bugs will have a field day," said David Thurtell, analyst at Citi, who thinks gold could hit $1,300 next week.
QE is a process by which central banks attempt to pump money into the economy by buying bonds. Excess liquidity could lead to too much money chasing too few goods or services, resulting in upward price pressures.
HSBC's chief commodity analyst James Steel said gold had rallied significantly in late 2008 when the Fed turned to unconventional economic stimulus, and market talk of further QE has accompanied gold's largest rally this year.
"I'm quite surprised we are here really, gold seems to be playing follow the leader with silver ... and the dollar's weakness," Simon Weeks, head of precious metals at Scotia Mocatta, said.
SILVER OUTPERFORMS GOLD
Since August 24, silver has rallied nearly 18 percent, outperforming gold's 10 percent rise over the same period, Reuters data showed.
Michael Daly, gold specialist at futures broker PFGBest, said strong industrial demand from the electronics and solar-panel sectors was helping to drive the surge in silver.
Gold's rally to record highs has also attracted investors to silver due to the latter's relative affordability, he said.
"A lot of investors feel like they have missed the boat on gold, and now they think gold may pull back, but they are comfortable buying silver at $20 an ounce," Daly said.
The gold-to-silver ratio -- which shows how much silver an ounce of gold can buy -- fell to just above 60, its lowest since January.
Silver rose 0.2 percent to $20.76 an ounce from $20.49 on Wednesday. In earlier trade, silver hit $20.82, its highest since early 2008.
Spot platinum rose to $1,607 an ounce from $1,604.50 in New York late on Wednesday, and palladium eased to $548 versus the previous session's finish at $553.78.
(Graphic by Van Tsui in New York, additional reporting by Pratima Desai and Veronica Brown in London, editing by Dale Hudson)