November 5, 2010 / 12:59 AM / 7 years ago

Gold rises to record on renewed inflation worries

NEW YORK (Reuters) - Gold prices rose to an all-time high within a few dollars of $1,400 an ounce on Friday as the U.S. Federal Reserve’s program to resume buying government bonds stoked inflation worries.

The metal was up nearly 3 percent for the week, its strongest weekly close since May, Reuters data showed.

Gold’s rally to a record came despite the fact that the dollar was up almost 1 percent on the day, boosted by a U.S. nonfarm payrolls report that suggested the economy may be on a stable road to recovery.

“Bullion investors are ignoring what the dollar is doing right now and looking more at what the Fed is doing, knowing it’s inflationary for the market regardless of what it does,” said Jeff Pritchard, a broker at Altavest Trading.

“At some point, there is no way that inflation won’t be an issue. Right now, if you want a return on your money, the commodity and stock markets seem to be the place,” he said.

Spot gold rose 0.2 percent to $1,394.30 an ounce at 3:35 p.m. EDT, having earlier hit a record of $1,397.80. U.S. gold futures for December delivery settled up $14.60, or 1.1 percent, at $1,397.70.

Tom Kendall, an analyst at Credit Suisse, said that gold’s rise in the face of a strong dollar showed strong support to buy gold.

“There’re lots of ways the Fed statement impacts gold. One is inflation expectations, secondly what happens to the U.S. dollar. (Also) the commodities complex has been lifted by this action as it accelerates this trend of money looking for returns from emerging markets and hard assets,” Kendall said.

The dollar soared on Friday after data showed U.S. employers added 151,000 jobs in October, blowing past expectations of a 60,000 rise and marking the fastest pace of hiring since April.

The report came two days after the Fed committed to inject $600 billion to boost the flagging recovery and left some investors open to the possibility that the dollar may have carved a bottom against its biggest rivals, despite the prospect of more monetary easing.

The inverse link between gold and the dollar weakened on Friday, even though the relationship had tightened after the Fed announcement, with the hourly correlation between the two easing to 0.57 from Thursday’s peak of 0.66.

Gold had its biggest one-day rise in about six months on Thursday.

“The key implication of the QE (Fed quantitative easing) measures is that major currencies -- particularly the U.S. dollar -- are likely to lose value relative to ‘alternative’ currencies such as gold,” said David Thurtell, an analyst at Citi.

Policymakers from the world’s new economic powerhouses in Asia criticized the Fed’s move to inject billions of dollars into the U.S. economy, saying it made any substantive deal on cutting global economic imbalances less likely at next week’s Group of 20 meeting in Seoul.

Among other precious metals, silver rallied to a new 30-year high on the rising gold prices, while palladium rose to a fresh nine-year high.

Silver set a 30-year high of $26.89 an ounce. It was trading up 1.2 percent at $26.65.

Palladium peaked at $697 an ounce and was later 0.3 percent at $683. Platinum slipped 1.1 percent to $1,761.49.

Additional reporting by Michael Taylor and Maytaal Angel in London; Editing by Walter Bagley

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