Gold Rises to Record $1,498.90 an Ounce as Weakening Dollar Stokes Demand - By Bloomberg

Gold extended gains to a record in New York as a drop in the dollar buoyed demand for the metal as an alternative investment.

Futures surged yesterday after Standard & Poor’s revised its U.S. credit outlook to negative. Gold has jumped 5.3 percent this year as the dollar dropped 4.8 percent against a basket of six other currencies including the euro and British pound.

Gold prices may keep rising for “some years into the future,” Blackrock Inc. (BLK) fund manager Evy Hambro said in an interview with Mark Barton on Bloomberg TV’s “On the Move.”

Gold for June delivery rose $1.60, or 0.1 percent, to $1,494.60 an ounce by 8:20 a.m. in New York after earlier today climbing to $1,498.90. Immediate-delivery gold was little changed at $1,493.93 an ounce in London.

The 14-day relative strength index of gold futures rose to 70.135, above the level of 70 that some analysts who study charts view as a sign that prices are poised to drop.

“$1,500 is definitely a psychological level,” said Mark O’Byrne, executive director of brokerage GoldCore Ltd. in Dublin. “Any correction is likely to be short and shallow, given the very strong fundamentals.”

At current prices, gold is still $900 below the inflation- adjusted level, GoldCore’s O’Byrne said, adding that gold may reach as much as $2,400 in the coming years.

‘Debt Issue’

“The focus has moved to the U.S. sovereign debt issue,” O’Byrne said. “There are very significant risks in the world, that’s why people are diversifying into gold. Before, the U.S. government debt was meant to be risk free. Now that is in question.”

Gold has gained in the last 10 years on increased investment demand for commodities and on concern that currencies may be debased as central banks stimulate their economies. Unrest in the Middle East, sovereign-debt turmoil in Europe and Japan’s nuclear crisis have bolstered sales, propelling bullion 32 percent higher in the past year.

Additional support for gold came from quickening inflation that has prompted policy makers across the globe to raise interest rates. Consumer prices in China rose at their quickest pace since 2008 in March, exceeding the government’s 2011 target for a third month.

Inflation ‘Impetus’

Inflation in the 17-nation euro region quickened to 2.7 percent from 2.4 percent in February, the European Union’s statistics office said last week. U.S. wholesale costs rose 5.8 percent in March compared with a year earlier, and the government said that the cost of living rose for a ninth month.

“Growing fears of rising inflation and a weak dollar continue to benefit gold and silver,” Marc Ground, an analyst at Standard Bank, wrote in a note. “Inflation-hedge buying is providing the main impetus.”

Gold held in exchange-traded products rose 0.36 metric tons to 2,070.32 tons yesterday, the highest level since Jan. 24, data compiled by Bloomberg from 10 providers show.

Silver for May delivery gained 0.7 percent to $43.275 an ounce. Palladium for June delivery was up 0.7 percent at $744.35 an ounce and platinum for July delivery rose 0.3 percent to $1,788.70 an ounce.