Gold Jumps to 18-Month High on Weaker Dollar, Inflation Outlook

Sept. 8 (Bloomberg) -- Gold rose to the highest price since March 2008, topping $1,000 an ounce, while silver climbed to a 13-month high as a weaker dollar and concern that inflation may accelerate boosted the appeal of precious metals.

Bullion surged as high as $1,009.70 in New York, within 3 percent of the record of $1,033.90 set in March 2008. The metal is headed for a ninth annual gain. Crude oil and all six industrial metals on the London Metal Exchange rallied as the U.S. Dollar Index fell as much as 1.2 percent to an 11-month low. Raw materials typically rise when the greenback falls. Equity indexes climbed from Tokyo to London and New York.

“The market thinks inflation is coming,” Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois, said by telephone. He has been trading gold for more than 30 years and believes gold won’t stay above $1,000 for long. “With interest rates so low, money is chasing money and the dollar is getting murdered.”

Governments have cut interest rates and boosted spending to fight the worst recession since World War II, spurring investors to buy bullion as a hedge against the prospect of accelerating inflation and currency debasement. Gold, silver and palladium holdings in exchange-traded funds have reached records.

Gold previously traded at more than $1,000 on Feb. 20, the first time the metal had surpassed that price since March 2008. Futures dropped as low as $865 on April 6. The metal advanced $3.10, or 0.3 percent, to $999.80 an ounce on the New York Mercantile Exchange’s Comex division. In London, bullion for immediate delivery surged as high as $1,007.70 and traded at $995.75 at 8:25 p.m. local time.

Selling May Ensue

“We are at levels similar to February and June this year, which triggered profit-taking, sending gold prices lower,” Anne-Laure Tremblay, a BNP Paribas SA analyst in London, said by e-mail. She cited “little in the way of inflationary pressures” as well as an appetite for riskier assets.

“This week I will be looking for consistent and steady trade above $1,000 before considering a long position in gold,” Ralph Preston, a Heritage West Futures Inc. analyst in San Diego, said by e-mail. “I’m looking for $1,200 gold before year’s end. I believe the Iranian deadline to negotiate with the West will have an impact on gold and oil moving into the final quarter of this year.”

Iran may offer to resume talks over the Persian Gulf country’s nuclear program, Agence France-Presse reported, citing comments by Foreign Minister Manouchehr Mottaki on the state-run ISNA news service. World powers have set an informal end-of- September deadline for Iran to respond on its atomic-power work.

$1,200 ‘Possible’

Gold may set a record within five sessions and “it’s possible” that it will touch $1,200 within weeks, Prospector’s Kaplan said. “And if a new record doesn’t come soon, it doesn’t come in the near future,” Kaplan said. “Markets think that the Fed isn’t going to withdraw stimulus money fast enough and that would cause inflation.”

Gold may be cementing its haven-investment status as governments flood the financial system with cash to haul the global economy out of a recession. The dollar index has dropped for three straight sessions, touching 77.047, the lowest since Sept. 29. The gauge has slipped 4.9 percent this year.

“We don’t see any immediate recovery in the dollar and gold is one of the better alternatives,” said Bernard Sin, the head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “From here, the next technical level is $1,040, and at the rate it’s going, it might not be difficult. There’s a lot of new money coming into gold.”

Decline by Year-End

Gold prices may reach a short-term peak of $1,050 and retreat to the “mid-$700s” by year-end, said Miguel Perez- Santalla, a Heraeus Precious Metals Management sales vice president in New York. “I am a bear” on gold, he said.

““Even though the U.S. dollar continues to be weak against the euro, gold is considered overall by the market to be overdone at the higher price level,” Perez-Santalla said. “I won’t put my money into gold, and I know many traders and their families that are rummaging their jewelry looking for scrap to sell to take advantage of these high prices.”

The metal’s advance boosted producers. Newcrest Mining Ltd., Australia’s largest gold-mining company, gained 3.7 percent to A$33.75 in Sydney. Zijin Mining Group Co., China’s biggest supplier, rose as much as 10 percent in Hong Kong.

“Gold can push much higher, especially if confidence in the dollar continues to recede,” Edward Meir, an MF Global Ltd. analyst in Darien, Connecticut, said today by e-mail. “In fact, adjusted for inflation going back to 1980, values should be around $2,500 an ounce.”

In London, lead, which has more than doubled this year to pace gains in metals, jumped 4.5 percent. Copper, which has doubled this year, rose 2.4 percent to a one-week high.

Other Precious Metals

Other precious metals have outperformed gold this year.

Silver futures for December delivery advanced 22.5 cents, or 1.4 percent, to $16.51 an ounce on the Comex, after touching $16.86, the highest for a most-active contract since Aug. 5, 2008. The metal has climbed 46 percent this year.

Palladium futures for December delivery rose $2.60, or 0.9 percent, to $298.60 an ounce and touched $301 earlier, a one-year high. The best-performing precious metal this year has gained 58 percent in 2009. Platinum futures for October delivery jumped $30.50, or 2.4 percent, to $1,289.60 an ounce in New York, increasing its gain for the year to 37 percent.

Investing in gold “is a hedge against policy makers losing control of fiscal and quantitative monetary policies,” said Greg Gibbs, a Royal Bank of Scotland Group Plc strategist in Sydney.

U.S. President Barack Obama has increased the nation’s marketable debt to an unprecedented $6.78 trillion as he borrows to spur the world’s largest economy. Goldman Sachs Group Inc. predicts that the U.S. will sell about $2.9 trillion of debt in the two years ending September 2010.

Oil Climbs

Crude-oil futures, used by some investors to forecast inflation, surged as much as 5.5 percent today and have soared 59 percent this year in New York. Consumer prices will rise 0.9 percent in advanced economies in 2010 compared with 0.1 percent gain this year, the International Monetary Fund said in July.

Gold’s eight-year advance, the longest in six decades, may attract more investors. Assets in some of the industry’s largest exchange-traded funds have set records in the past few months.

The SPDR Gold Trust, the biggest ETF backed by the metal, reached an all-time high of 1,134.03 metric tons on June 1. The fund, which held 1,077.63 tons as of Sept. 4, has overtaken Switzerland as the world’s sixth-largest gold holding. Bullion held in ETF Securities Ltd.’s exchange-traded products gained 6,640 ounces to a record 8 million ounces (248.8 tons) yesterday, its Web site showed.

The company’s silver holdings increased 0.9 percent to an all-time high of 20.516 million ounces, while palladium assets rose 1 percent to a record 456,953 ounces.