Gold rallied to fresh record highs in Europe on Thursday as the dollar slid to its lowest this year versus a basket of major currencies, boosting interest in the metal as a haven from currency market volatility. Gold retreated as the dollar index lifted from lows, but remains firmly underpinned, analysts said.
Spot gold hit a high of $1,387.10 an ounce and was bid at $1,377.50 an ounce at 1435 GMT, against $1,370.90 late on Wednesday. US gold futures for December delivery were up $7.90 at $1,378.40, having peaked at $1,388.10 an ounce.
Gold prices have risen more than 25 percent this year as the dollar has been battered by expectations that US policymakers will pursue an increasingly loose monetary policy involving quantitative easing to stimulate economic growth. Standard Chartered analyst Daniel Smith said dollar weakness had been a major driver of the recent run higher in gold.
"In the last day or so we've seen evidence that we are going to see more weakness in the dollar in the next week or two," he said. "We are breaking down through some key levels." Silver prices also rode higher on gold's coat-tails, reaching a fresh 30-year high at $24.90 an ounce before easing back to $24.53 an ounce against $23.89.
The dollar index - which measures the dollar's performance against a basket of six major currencies - hit the year's low on Thursday after Singapore widened its currency's trading band, piling more pressure onto the struggling greenback. "Although QE expectations are an important element of the rally, currency disputes are also a prime driver of gold prices," said HSBC's Jim Steel in a note.
"The recent IMF meeting saw the public airing of sharp disagreements between China and the United States on currency policy." Swiss bank UBS raised its one-month forecast for gold to $1,425 an ounce from $1,300, saying it sees limited downside potential for gold ahead of the Fed's November meeting, and its three-month price view to $1,400 an ounce from $1,300.
"Gold's climb is not showing any signs of slowing," it said. "$1,400 is now being eyed as a short-term target, which seems easily achievable as long as the dollar continues to fall across the board." Gold's rally towards $1,400 an ounce has outpaced most expectations. A poll conducted at the London Bullion Market Association's annual conference in September gave an average forecast for gold to be trading at $1,450 by September 2011. A poll of 55 analysts conducted by Reuters in July returned an average price forecast of $1,197 an ounce for 2010.
Interest in gold-backed exchange-traded funds remained soft, however, with holdings of the world's largest, New York's SPDR Gold Trust, declining further on Wednesday. They have fallen some 19.5 tonnes since the end of September.
However, other forms of gold investment and decent buying in the key Indian markets ahead of festivals there is keeping the metal well bid. Among other precious metals, palladium rallied to a fresh 9-year high at $603 an ounce, lifted by strength in gold, dollar weakness and an improving supply and demand picture. Palladium was at $600 against $590.45, while platinum was at $1,705 an ounce against $1,702.25.
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