Gold Jumps to Record Above $1,100 on U.S. Interest-Rate Outlook

Nov. 6 (Bloomberg) -- Gold futures jumped to a record, topping $1,100 an ounce, on mounting speculation that low U.S. borrowing costs will drive down the dollar, boosting the appeal of the precious metal as an alternative investment.

The metal reached $1,101.90 in New York, heading for a ninth straight annual gain. The dollar is down 6.8 percent this year against a basket of six major currencies as the Federal Reserve keeps its benchmark interest rate at zero to 0.25 percent to revive economic growth.

“Until Washington stops exploding the deficit, the dollar will continue to weaken, and gold is going higher,” said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago.

Gold futures for December delivery rose $6.40, or 0.6 percent, to $1,095.70 on the Comex division of the New York Mercantile Exchange, climbing for the fifth straight day. The price has gained 24 percent this year.

The jobless rate and low inflation will keep the Fed from raising rates until 2011, John Brynjolfsson, the chief investment officer at hedge fund Armored Wolf LLC in Aliso Viejo, California, said in an interview on Bloomberg Television.

The unemployment rate in the U.S. reached a 26-year high of 10.2 percent in October, the Labor Department said today. Consumer costs rose 0.3 percent last month, according to the median forecast of economists surveyed by Bloomberg News.

President Barack Obama has increased the nation’s marketable debt to an unprecedented $7 trillion as the government borrows to fund spending programs intended to bolster the economy.

‘Massive Demand’

“There’s massive investment demand for gold,” said Christoph Eibl, a co-founder of Zug, Switzerland-based Tiberius Group, which manages $1.8 billion. “I see more liquidity pumped in to lift the economies from bad news.”

Seventeen of 23 traders, investors and analysts surveyed by Bloomberg, or 74 percent, said bullion will rise next week. Four forecast lower prices, and two were neutral.

This week, gold gained 5.3 percent, the most since April, after India said it purchased 200 metric tons of gold from the International Monetary Fund last month.

Other central banks may follow in a shift away from the dollar, analysts said.

Sri Lanka’s central bank, which has been purchasing gold for the past seven months, will continue buying the metal as a hedge against volatility in currency markets, Ajith Nivard Cabraal, the bank’s governor, said today. Cabraal, speaking in Colombo, declined to say how much had been bought.

Sri Lanka held 5.3 metric tons of gold as of September, according to World Gold Council data.

Gold ETF

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, declined to 1,108.34 tons as of yesterday from 1,108.4 tons on Nov. 4.

“We are rather concerned about the crowded nature of the gold market, for everyone, everywhere is long of gold and bearish of the dollar,” economist Dennis Gartman said in his Suffolk, Virginia-based Gartman Letter.

Silver, which has wider industrial applications than gold, declined on concerns that demand will falter because of the sluggish economy.

Silver futures for December delivery fell 3.5 cents, or 0.2 percent, to $17.375 an ounce. The price has climbed 54 percent this year.