NEW YORK (TheStreet ) - Gold prices on the Comex were surging past $1,300 an ounce Wednesday largely on technical trading and a weak dollar. The real test will come Friday when the fourth quarter begins and it's seen whether this recent rally can last.
Gold for December delivery was adding $1.70 to $1,309.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,314.80, another record, and as low as $1,307.
The U.S. dollar index was losing 0.39% to $78.70 while the euro was rising 0.22% to $1.36 vs. the dollar. The spot gold price Wednesday was down $2.70, according to Kitco's gold index, as traders opted for futures contracts over the physical metal.
There is no doubt that gold's rally in September has been impressive. The fall is typically a seasonally strong buying period for gold as a slew of festivals and weddings in China and India spur gold jewelry purchases. Frank Holmes, CEO of U.S. Global Investors, says that on average the gold price moves 2.5% higher in September; so far prices have rallied 5% in the month.
The majority of the momentum has actually come from investment demand, not jewelry demand. The gold exchange-traded fund, SPDR Gold Shares(GLD), currently holds 1,305.68 tons of gold as investors buy and hold the precious metal.
Investor buying has been triggered by consistent signs that governments around the world will intervene in the currency markets to keep their respective currencies low to help export demand and facilitate a sustainable economic recovery.
"Every currency block is determined to help its export growth by weakening [its] currency," says Dean Curnutt, head of Macro Risk Advisors.
The Bank of Japan, struggling to contain the yen's rapid rise, took steps to depreciate its currency. Pressure is mounting for China to let the yuan appreciate more quickly. Although the euro is holding up relatively well, worries that Moody's might downgrade Spain's credit rating after lowering Anglo Irish Bank to just above junk status have many investors predicting that tax increases and spending cuts won't be enough to save the struggling eurozone economies, that it's just a matter of time before the weaker nations tap the European Union/International Monetary Fund joint bailout fund.
In the U.S., the assumption is that the Federal Reserve will print more money to buy more government bonds and will announce the measure in early November after its two-day meeting. There are still question marks as to how much money will be lent to the government and for how long.
