Gold run rolls on; next stop $1,000?

Gold futures prices rose Wednesday to their highest level since 1980, extending a seven-year rally, as a weakening dollar and higher energy costs boosted demand for a hedge against inflation.

So-called spot gold reached an all-time record.

Investors have poured money into the precious metal as the dollar has declined against other currencies. In 2007, as the dollar reached a record low against the euro, gold gained 31%.

Gold futures for January delivery rose $22.10 on Wednesday to $857 an ounce on the Comex division of the New York Mercantile Exchange.

During the session the metal traded as high as $864.90, the highest quote for a most-active gold contract since Jan. 21, 1980, the day futures touched a record $873.

Gold for immediate delivery rose $23.50, or 2.8%, on Wednesday to $857.20 after reaching a record $860.10.

“Gold is leading us into uncharted territory,” said Frank McGhee, head metals trader at Integrated Brokerage Services in Chicago. “Crude [oil] is making a run for $100, the dollar is headed lower and geopolitical tensions are building. It’s very possible gold can get to $1,000 this year.”

Silver also rallied, with the March contract gaining 37 cents, or 2.5%, to $15.29 an ounce. The metal rose 15% last year.

The dollar dropped as much as 1.1% on Wednesday against the euro, extending last year’s 10% decline, after a survey of U.S. corporate purchasing managers suggested manufacturing unexpectedly contracted last month.

“The most salient buzzword in 2008 is going to be inflation,” said Michael Pento, senior market strategist for Delta Global Advisors Inc. in Huntington Beach, which manages about $1.4 billion. “The Fed is lowering interest rates and vastly increasing the money supply. They’re further fueling inflationary expectations.”

Gold’s gain last year was the biggest since 1979, when the price more than doubled after the shah of Iran was overthrown, energy costs surged and the dollar slumped.

Investment in the StreetTracks Gold Trust, an exchange-traded fund backed by bullion, surged 39% last year to a record 628 metric tons.