Gold Reaches 27-Year High on Dollar, Oil Records; Silver Gains

Gold rose to the highest since 1980 as record oil prices and a slumping dollar increased concern that inflation will accelerate. Silver jumped to the highest in 26 years.

Oil surged as high as $97 a barrel in New York and the dollar extended its slide to the lowest ever against the euro, boosting the appeal of precious metals as an inflation hedge. Investment in the StreetTracks Gold Trust, an exchange-traded fund backed by bullion, has risen 32 percent this year to a record 598 metric tons.

This gold market is up, up and away,said Ron Goodis, futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. The dollar is going to keep skidding. We don't know if it's going to be a recession, inflation, stagflation. People want to buy gold.

Gold futures for December delivery rose $14, or 1.7 percent, to $824.80 an ounce at 10:42 a.m. on the Comex division of the New York Mercantile Exchange. The price earlier climbed to $826.40, the highest for a most-active contract since Jan. 21, 1980, the day gold reached a record $873. Gold has rallied 29 percent this year and is heading for the seventh straight annual gain.

Silver futures for December delivery rose 56.5 cents, or 3.8 percent, to $15.35 an ounce, after earlier reaching $15.405, the highest price for a most-active contract since Jan. 21, 1981. Before today, the metal climbed 14 percent this year.

Weakening Dollar

The dollar fell to $1.457 against the euro, the lowest ever, on speculation losses related to U.S. subprime-mortgage defaults will prompt the Federal Reserve to reduce interest rates for a third time this year.

Gold gained 23 percent last year when the dollar dropped 10 percent against the euro. The dollar is down 9.3 percent against the euro in 2007 and has fallen 3.9 percent since Sept. 18, when the Fed lowered the overnight lending rate for the first time in four years. The Fed cut rates again by 0.25 percentage point to 4.5 percent on Oct. 31.

Five of the past six bear markets for the U.S. currency have resulted in a gold rally. Interest-rate futures indicate investors believe there is a 62 percent chance the Fed will lower rates to 4.25 percent by Dec. 11, compared with a 6 percent chance a month ago.

Everyone should keep accumulating gold and selling dollars,said James Turk, founder of GoldMoney.com, which had $237 million of gold and silver in storage for investors at the end of October.

Turk expects gold to breach $1,000 in 2008. He correctly predicted last year gold would rise above $800 in 2007. Gold remains cheap and the dollar is still way overvalued,he said.

With the two external drivers of gold -- a weak U.S. dollar and strong oil -- together conspiring to lift the metal higher, we are now in range of a move to the all-time nominal high of $850,said UBS AG analyst John Reade.

Gold for immediate delivery in London rose $16.22, or 2 percent, to $822.72. The spot price has averaged $677.64 this year.

Crude-oil futures traded higher on concern demand will outpace supply. Gold reached its record in January 1980 after oil costs doubled in a year, sparking a surge in the inflation rate.

Source - Bloomberg