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Gold hits record high on recovery doubts
Gold hit a record high Wednesday of $1,293.10 an ounce as the market reacted to the US Federal Reserve’s announcement that it was planning to inject more cash in the economy to support the recovery process.
REUTERS - Gold rose for a third day on Wednesday to hit record highs above $1,290 an ounce after the Federal Reserve's signal that it was prepared to pump fresh cash into the economy hurt the dollar and whet investor appetite for bullion.
Silver edged ever-closer to its highest in thirty years, against a backdrop of investors seeking cheaper safe-haven assets, which was reflected in the largest one-day inflow of metal into the iShares Silver Trust in 10 months.
Global equities and government bond prices rose after the Fed on Tuesday laid the groundwork for further stimulus measures and expressed concerns about low inflation, yet made no policy shift at the end of a one-day meeting.
Spot gold hit a new record of $1,294.95 an ounce, before easing to $1,293.10 an ounce by 0945 GMT, still showing a 0.6 percent gain on the day. U.S. gold futures rose $21 an ounce to $1,294.50, having hit a contract high at $1,296.5.
"The key driver was the .... statement and the subtle change in language that it was "prepared to provide additional accommodation if needed" a shift from the previous wording that it "will employ its tools as necessary'," said Credit Agricole analyst Robin Bhar.
"We interpret this as a conditional easing bias. It ushes the door for QE2 wider and the implication that this has for a weaker dollar and further unease of what governments will do to weaken their currencies to support flagging economic growth."
Should the Fed resort to a second round of quantitative easing, which involves large-scale purchases of Treasuries to keep interest rates low in exchange for a cash injection into the system, gold's appeal to investors grows as the opportunity cost of holding a non-yield bearing asset declines.
Also, fresh cash in the economy raises the risk of a pick-up in inflation, which erodes the returns from currency, equity and bonds holdings, yet benefits owners of gold, who see the value of their holdings rise in line with consumer prices.
Gold has risen by over 17 percent this year, as investors have sought a relatively safe asset in which to park their cash as major currencies, stocks and bonds have become increasingly volatile.
But large investor positions in gold, as reflected by holdings of metal under the SPDR Gold Trust, the world's largest exchange-traded fund, and open interest in U.S. futures puts gold at the risk of a downward correction.
"The market looks overextended to me. People are predominantly long and keen to see higher prices, and as such, no one is going to stand in the way," said Simon Weeks, head of precious metals at ScotiaMoccatta.
"Once we've settled down a bit, I think further gains from here towards $1,300 are going to be tough. Having said that -- I hate the cliche -- but the trend has very much been people's friend of late."
On the physical market, premiums in Hong Kong and Singapore were little changed despite high prices, with those in Singapore being around 50 to 80 cents, a dealer based in the city said.
"I reckon customers are recovering from the aftershock of $20 jump. Again it's a mixed market -- in Thailand we see both physical demand and scrap selling, while Indonesian clients have gone hiding this morning and nothing is seen from India so far," said the dealer.
Silver prices broke above $21.00 an ounce to their highest since March 2008 and remained within a hair's breadth of highs not seen since October 1980.
Holdings in the iShares Silver Trust jumped 127.81 tonnes, the biggest gain in nearly 10 months, to 9,509.55 tonnes.
Spot silver was last at $21.04, up 0.5 percent on the day, and set for a rise of 9.1 percent in September, its largest monthly gain since November 2009.
Spot palladium rose nearly 2 percent to $536 an ounce. The price hit a near 4-month high of $563 on Sept 15, while platinum was up 0.6 percent at $1,630.50.