Gold hits record on inflation fears

NEW YORK/LONDON (Reuters) - Gold rose to a record high above $1,150 an ounce on Wednesday as stronger-than-expected U.S. consumer prices and a steadily weakening dollar stirred inflation fears.

Market sentiment also improved after news that billionaire hedge fund manager John Paulson is launching a new gold fund, including $250 million of his own personal investment.

Doubts about a nascent economic recovery and worries about the consequence of unprecedented quantitative easing also increased gold’s appeal as a safe haven.

“There is a lurking concern in the background that still exists,” said Bill O’Neill, partner at LOGIC Advisors, noting that investors were worried about the vulnerability of banks and the financial system.

Spot gold hit an all-time high of $1,152.75 an ounce and was at $1,142.55 an ounce at 3:08 p.m. EST (2008 GMT), against $1,141.50 late in New York on Tuesday.

U.S. December gold futures settled up $1.80 at $1,141.20 an ounce on the COMEX division of NYMEX.

The metal remains firmly underpinned by technical support after several days of gains and is likely to break through to further fresh highs in coming sessions after a buildup of momentum, analysts said.

An employee takes gold ingots to be weighed in a room for final weighing and packaging at the Krastsvetmet plant in the Siberian city of Krasnoyarsk November 16, 2009. REUTERS/Ilya Naymushin

“This is a sentiment-driven market, which means that should data confirm expectations, the market trades on it. Otherwise, it ignores it,” said Commerzbank analyst Eugen Weinberg.

“The liquidity is still there, risk appetite is still there, the dollar is weak, so all the factors which have been in place for weeks and months are still in place.”

Gold is attracting a new wave of investment as it pushes through key technical resistance levels to fresh highs.

The euro rose to a session high against the dollar on Wednesday on benign U.S. inflation data, while the dollar index, which measures the U.S. currency’s performance against a basket of six others, was down 0.4 percent.


Gold denominated in currencies other than the U.S. dollar gained ground, reaching the highest levels since late February in euro and sterling terms and since May when priced in the Australian dollar.

The news that Paulson will launch a new gold fund stirred investment buying in gold.

Paulson is among a number of hedge fund managers stocking up on the precious metal, for centuries considered a hedge against inflation, as governments around the world ramp up spending to combat recession.

Gold’s strength also lifted other precious metals, with silver hitting a 16-month high at $18.83 an ounce, platinum reaching a peak of $1,463.50, its highest since September 2008, and palladium reaching a 15-month high of $376.

Silver was last at $18.52 an ounce against $18.40, while platinum was at $1,439.50 an ounce against $1,453 and palladium was at $368.50 versus $370.

Reporting by Frank Tang and Jan Harvey; editing by Jim Marshall