Gold Surpasses $1,550/Ounce As Dollar Drops

NEW YORK (Dow Jones)--Gold futures topped $1,550 an ounce Friday as investors sought an alternative to the U.S. dollar.

There doesn't seem to be an end in sight for the metal's historic rally as U.S. interest rates are set to remain low for some time, keeping speculative investment strong in gold even as demand is on the rise for a hedge against global inflationary pressures.

The most-actively traded gold contract, for June delivery rose $25.20, or 1.6%, to settle at a record $1,556.40 a troy ounce on the Comex division of the New York Mercantile Exchange. It extended its intraday peak to $1,569.80 in electronic trading after the close. May gold gained $25.20, or 1.6%, to end at a nearby record $1,556.00, posting its biggest monthly dollar and percent gain since November 2009.

Most-active July silver advanced $1.058, or 2.2%, to a record settlement $48.599 a troy ounce, while the May contract jumped $1.064, or 2.2%, to $48.584, just shy of its all-time settlement high of $48.70 hit on Jan. 17, 1980. In April, the May silver contract surged $10.712, or 28.3%, to its largest monthly dollar gain in Comex history.

"It's really a vote against the dollar," said Ira Epstein, director of the Ira Epstein division of the Linn Group. "Commodities have become cash."

Shortly after gold closed, the ICE Futures U.S. Dollar Index was down 0.2%, boosting demand for the dollar-denominated precious metals by making them cheaper for foreign buyers. The buck was continuing its pullback after the Federal Open Market Committee Wednesday maintained its bias toward cheap credit and Fed Chairman Ben Bernanke followed that up with comments suggesting U.S. interest rates will stay low.

Easy monetary policy has helped spur gold and silver to records by encouraging speculators to pile in.

Ultralow interest rates have also boosted the allure of the noninterest-bearing metals.

The low rates and the Fed's purchases of Treasurys to stimulate the economy have caused some to believe the central bank won't be able to sponge up extra liquidity in time to avoid problematic inflation over the longer term.

On Friday, an inflation gauge closely monitored by the Federal Reserve, the price index for personal consumption expenditures that strips out food and energy, increased 0.9% on a year-over-year basis.

While that is far below the central bank's desired range of 1.5%-2%, the debate among investors continues as to whether high gasoline and other commodity prices have risen fast enough to produce broader inflation pressures, requiring the Federal Reserve to begin raising interest rates.

A closely-watched survey of Chicago-area purchasing managers showed the economy expanded at a slower pace in April while inflation pressures remained at lofty levels. Meanwhile, the Commerce Department reported a slowdown in March consumer spending amid rising prices.

The data added to government figures Thursday showing U.S. economic growth slowed while prices for gasoline and food rose.

Because gold is traded internationally, the metal also tends to also rise when worries are heightened about inflationary pressures overseas.

Friday data showed the euro zone's inflation rate rose more than expected to a 30-month high in April of 2.8% from 2.7% in March. Meanwhile, Russia's central bank unexpectedly raised rates Friday, as inflation is seen as the top economic problem facing the country by a majority of Russians ahead of presidential elections in 2012.

Gold and silver have traditionally been viewed as stronger stores of value in times of rising prices than some other assets.

"There doesn't look like there's any resistance," said Bob Haberkorn, senior market strategist with Lind-Waldock in Chicago. "Sixteen hundred dollars could get here a lot quicker than I thought."

On Friday, some gold-market participants were out of the market because London trading desks were closed for a Royal Wedding national holiday. London markets will be shut on Monday as well for a bank holiday.

Other precious metals also rose Friday. Nymex July platinum gained 1.4% while June palladium rose 2.2%.

 
Settlements (ranges include open-outcry and electronic trading): 
London PM Gold Fix: $1,535.50; previous PM $1,511.00 
Jun gold $1,556.40, up $25.20; Range $1,532.10-$1,569.80 
Jul silver $48.599, up $1.058 cents; Range $48.080-$49.210 
Jul platinum $1,865.50, up $25.60; Range $1,839.90-$1,882.00 
Jun palladium $792.15, up $16.85; Range $775.30-$794.85 
 

(Source: http://online.wsj.com/article/BT-CO-20110429-711695.html)