Gold Futures Reach 17-Year High
Gold climbed to its highest level in 17 years Thursday, amid rising inflation worries and concern that the dollar could be headed lower if the economy slows and the U.S. budget deficit expands further.
Near-term gold futures in New York jumped $5.70 to $455.50 an ounce. The more actively traded December contract rose $5.60 to $459.30 an ounce.
Gold hasn’t been this high since June 1988, just before the metal began a long slide that bottomed at about $250 an ounce in 1999.
The price has risen in 10 of the last 12 trading sessions on the Commodity Exchange, in part because of fears over inflationary and economic fallout from Hurricane Katrina, analysts said.
Higher energy prices in Katrina’s aftermath are boosting inflation pressures in the economy, and gold is a classic hedge against inflation.
Although the government said Thursday that the consumer price index, excluding energy costs, was little changed in August, September manufacturing-activity reports from the Federal Reserve banks of New York and Philadelphia showed cost pressures increasing in those regions even as business activity slowed.
“Gold has always been a safe-haven play, and [it] seemed to fit the bill where we can add more inflation protection in our portfolios,” said Zach Liggett, a fund manager at Traverse City, Mich.-based Financial & Investment Management Group, which manages $450 million.
The consumer price index, including energy, is up 3.6% over the last 12 months.
Some investors also may be turning to gold as an alternative to the dollar and other major currencies. If the U.S. economy slows and the budget deficit widens because of post-Katrina spending, global investors may become less willing to hold dollar-denominated investments, currency traders say.
Gold’s latest rally “shows a growing lack of respect for all currencies,” said Dennis Gartman, an economist and editor of the Gartman Letter.
Gold’s surge in 2002 and 2003 in part stemmed from the dollar’s steep decline in that period. This year the dollar rallied against the euro and the yen in the first half, and gold stalled. But the buck has been weakening again since July.
“I own gold because it’s a hedge against a declining dollar,” said Hersh Cohen, who co-manages about $15 billion in assets for Citigroup Asset Management.
The dollar rallied modestly Thursday, however. One euro was worth $1.221, down from $1.228 on Wednesday. The dollar was worth 110.58 yen, up from 110.36.
Some analysts say gold also is being bolstered by expectations of continued strong buying in India, where the metal is heavily purchased for use as jewelry.
Gold’s rally this month has fueled hefty gains in gold-mining stocks. On Thursday, Barrick Gold jumped 48 cents to $28.07, a 52-week high. Also rising were Newmont Mining, up $1.05 to $44.99; Glamis Gold, up 10 cents to $21.10; and Placer Dome, up 32 cents to $16.19.
The so-called XAU index of 13 gold mining stocks is up 7.2% year to date, compared with a 1.3% gain for the Standard & Poor’s 500 stock index.
