LONDON - Gold prices rallied to record highs in Europe on Wednesday on fears moves by the Federal Reserve to tackle the sluggish U.S. economy would undermine the dollar, boosting investment in bullion as an alternative asset.
Spot gold hit a record US$1,313.20 and was bid at US$1,308.60 an ounce at 0953 GMT (5:53 a.m. EDT), against US$1,307.40 late in New York on Wednesday. U.S. gold futures for December delivery rose US$1.80 an ounce to US$1,310.10.
Gold's strength also lifted other precious metals, with silver reaching a fresh 30-year peak, palladium its highest level since March 2008 and platinum a four-month high.
"Gold is flying because of concerns over a weakening dollar, and the prospect of quantitative easing," said David Wilson, an analyst at Societe Generale. "Our internal house view is for a slight softening of the dollar over the next 3-6 months."
"We are not convinced the European economy is going to be doing particularly well next year either," he added. "It is going to be a kind of competition (to show) who will be worse out of the two."
The dollar fell 0.3% against a basket of six other currencies on Wednesday as falling U.S. Treasury yields and below-consensus U.S. data increased expectations the Fed would take further steps toward quantitative easing.
The U.S. currency fell to a five-month low against the euro and a two-year trough against the Australian dollar.
"The backdrop for the dollar continues to deteriorate," JPMorgan said. "The increased focus on QE and the break of several key dollar support levels maintained the overall bearish bias." The bank advised selling into any signs of strength.
Buying in India, the world's biggest gold consumer, rose on Wednesday despite the hike in spot prices, as strength in the rupee helped shield local buyers from the rise.
Scrap sales have also slowed after prices retreated from their rupee peak, with sellers waiting for prices to breach the 20,000-rupee level from around 19,100 rupees currently.
Investment interest in gold was also firm, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, climbing just over five tonnes on Tuesday.
Holdings of the largest silver ETF, the iShares Silver Trust, also rose on Tuesday, climbing 143 tonnes to a record high of 9,756 tonnes.
Silver prices responded my marking another 30-year high at US$22.00 an ounce, before easing back to US$21.76 an ounce against US$21.69. Gains in silver are outstripping those of gold.
"The ratio of gold to silver dropped below 60 for the first time in 11 months," said Fairfax analyst John Meyer.
"Silver has outperformed gold since the end of June, gaining 17% compared with gold's 5.4% climb, as investors bought on the back of the metals relative cheapness."
Palladium was the biggest climber of the precious metals on Wednesday, rising 2.5% to a 2-1/2 year high at US$571 an ounce, before slipping back to US$566.50 versus US$557.15. The autocatalyst metal is rising on hopes demand will improve.
"The palladium story is pretty bullish on what we have seen in the auto sector so far this year, and the heightened sense that Russian government stockpiles are going to have little influence in the next year in terms of capping rallies," said Societe Generale's Wilson.
Platinum reached its highest since May at US$1,650.50, and was later at US$1,644.50 an ounce against US$1,631.65.
