Gold Rises to Record as Dollar’s Slump Spurs Investment Demand

By Pham-Duy Nguyen and Nicholas Larkin

Oct. 13 (Bloomberg) — Gold futures rose to a record as the
slumping dollar spurred demand for the precious metal as an
alternative asset.

The metal is on course for a ninth straight annual gain.
This year, gold has gained 20 percent. Today, the price reached
a record $1,069.70 an ounce in New York, surpassing the previous
high on Oct. 8. The dollar has dropped 6.6 percent in 2009
against a basket of six major currencies, touching a 14-month
low.

“There’s lots of concern about the weakness in the dollar,
and this has been driving gold,�? said Peter Fertig, the owner
of Quantitative Commodity Research Ltd. in Hainburg, Germany.

Gold futures for December delivery gained $3.50, or 0.3
percent, to $1,061 at 11:05 a.m. on the Comex division of the
New York Mercantile Exchange.

The metal may benefit as central banks worldwide diversify
away from the dollar, analysts said. Nations reporting currency
holdings put 63 percent of the new cash into euros and yen in
April, May and June, Barclays Capital data show. China in April
said it purchased 454 metric tons of gold from 2003 to 2009,
according to data from the producer-funded World Gold Council.

China has the sixth-largest gold holdings, after the U.S.,
Germany, the International Monetary Fund, Italy and France. Only
1.9 percent of China’s foreign-currency reserves are in gold.

“The tremendous perception that the dollar will continue
to weaken is going to drive gold higher,�? said Frank McGhee,
the head dealer at Integrated Brokerage Services LLC in Chicago.
“China is nervous and continues to be nervous about the
dollar.�?

Record U.S. Debt

President Barack Obama has increased U.S. marketable debt
to a record as he borrows to reignite economic growth. That has
boosted speculation that increased money supply will debase the
currency and spur inflation.

The Federal Reserve has cut its main interest rate almost
to zero and backed asset purchases and credit programs to combat
the recession. Chairman Ben S. Bernanke is leading plans to buy
mortgage-backed securities, federal agency debt and Treasuries.

“The fear that central bank exit strategies will come too
late to prevent inflation is giving support to gold,�? Fertig of
Quantitative Commodity Research said.

U.S. consumer prices will increase 1 percent this quarter
and 1.9 percent and 1.8 percent in the following two quarters,
respectively, according to the median estimate of 66 economists
surveyed by Bloomberg.

Crude-oil futures, used by some investors as an inflation
guide, rose today to the highest in seven weeks. The price has
jumped 65 percent this year.

Gold will trade at $1,025 an ounce in the next three
months, up from a previous forecast of $950, Citigroup Inc. said
in a report, citing increased demand and the sliding dollar. The
bank raised its estimate for the coming six to 12 months to
$1,050, from $975.

“There is less obvious support for the current price from
the fundamentals of supply and demand, excluding investment,�?
Citigroup said. “Mine supply has recently been sufficient to
meet all fabrication demand. Excess demand for gold must
therefore be supported by investors.�?

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