NEW YORK (Reuters) - Gold surged nearly 2 percent to a record high near $1,375 an ounce on Wednesday, boosted by worries over currency depreciation after the Federal Reserve signaled it will resume buying government debt to stimulate the economy.
It was the biggest percentage gain since September 14 for gold, which has rallied 25 percent so far this year. Investors have sought safe havens with the Fed and other central banks professing readiness to inject more money into the financial system, a procedure known as quantitative easing.
Silver hit a 30-year peak to approach $24 an ounce, and the Reuters/Jefferies CRB index .CRB -- a barometer for commodities -- rose above 300 points for the first time in two years, as the dollar fell broadly. Wall Street rose more than 1 percent on strong bank earnings. .N
“Gold is an international currency phenomenon. Around the world, people are turning disdainful of their own currencies and everyone else‘s. So, where do they turn? They turn to the gold market,” Dennis Gartman, a hedge fund manager and publisher of the Gartman Letter, said.
Spot gold hit an all-time high of $1,374.15 an ounce and was up 1.5 percent at $1,370.20 an ounce at 2:34 p.m. EDT (1834 GMT). U.S. December gold futures settled up $23.80 at $1,370.50.
Silver hit $23.94, its strongest showing since 1980, and was last up 2.5 percent at $23.87 an ounce.
The dollar remained a main short-term driver of gold. The currency encountered broad selling pressure after minutes of the Fed’s last policy-setting session made public on Tuesday bolstered expectations the Fed will move to drive down rates further by resuming treasury debt purchases as soon as its next meeting on November 2-3.
The Fed, however, provided no details about the scope of potential purchases.
Axel Merk, portfolio manager of the Merk Hard Currency Fund (MERKX.O), said that the Fed and other central banks are trying to weaken their currencies to boost economic growth, prompting investors to turn to gold as an alternative currency.
“With the weaker dollar, inflation will pick up in the commodity space, which is the most sensitive to monetary stimulus. So, it’s only logical that gold will do very well in that environment,” said Merk, who manages $500 million in mutual fund assets.
The 25-day correlation between gold and the U.S. dollar was near a negative 0.6, its most pronounced in six months, Reuters data showed.
“Because we are in a world of quantitative easing in the developed economies, and as QE is almost synonymous with competitive devaluation ... gold and the precious metals (are) taking on the function of an alternative currency,” said Ashok Shah, chief investment officer at London and Capital.
“As we go into the next 1-4 quarters, the role of precious metals as alternative currency will become much more paramount,” he said.
Physical demand in Asia remains strong, and market players bet on a further rally in prices, dealers said.
Edel Tully, precious metals strategist at UBS, said the bank’s physical sales to India were above the year-to-date average ahead of Diwali, a major Hindu festival and gold-buying event.
Meanwhile, spot palladium rose as much as 2.5 percent to a one-week high of $594.50 an ounce on the back of the weaker dollar, as investors continued to pile into one of the top performing commodities of 2010.
Outstanding shares in ETF Securities’ U.S.-listed palladium exchange-traded fund, the world’s largest palladium ETF, staged their largest one-day rise in six months on Tuesday, indicating strong inflows of the metal.
With palladium up 45 percent so far this year and close to its highest in over nine years, the platinum-palladium ratio, or the number of ounces of palladium used to buy an ounce of platinum, fell to 2.87, its lowest in more than six years.
Additional reporting by Amanda Cooper and Jan Harvey in London; editing by Jim Marshall