LONDON, (Reuters) – Gold rallied to record highs in Europe on Friday, with spot prices knocking on the door of $1,300 an ounce, as expectations grew that further quantitative easing could lead to volatility in the currency markets.
Spot gold hit an all-time high of $1,299.65 an ounce and was bid at $1,298.80 an ounce at 7:28 a.m. EDT, against $1,293.50 late in New York on Thursday.
U.S. gold futures for December delivery hit a record $1,301.30 an ounce and were later at $1,300.10 an ounce, up $3.80. Silver also reached its strongest in 30 years at $21.41 an ounce, tracking gains in gold.
Gold has risen more than 4 percent so far this month and hit record highs for five consecutive sessions to Wednesday, extending gains after the Federal Reserve indicated it may consider further quantitative easing, undermining the dollar.
“The U.S. Fed is obviously contemplating, and the market is expecting, some kind of statement on quantitative easing,” said Deutsche Bank analyst Daniel Brebner. “The influx of new money in the system raises longer term expectations for inflationary forces.”
“If you look at peripheral Europe, you have sovereign risks which have been increasing for both Ireland and Portugal. There is a likelihood that there will be some kind of move by the European Central Bank to resolve that challenge.”
These two factors, and the likelihood that the dollar value will continue to erode, mean there is potential for higher prices, he added. “We could see some significant moves in gold and silver over the next quarter.”
Gold priced in Japanese yen also rose to its highest since late June at 110,335 yen an ounce after the yen slipped sharply on talk of a second intervention by Japanese authorities to stem the currency’s gain.
Against a basket of six currencies, the dollar weakened however, falling 0.5 percent .DXY. Dollar weakness lifts gold’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
SILVER HITS HIGHEST SINCE 1980
From a technical perspective, gold is poised for further gains after an 18 percent rally so far this year. Reuters’ technical analyst Wang Tao said the metal could reach $1,539 an ounce by the end of the year, based on technical indicators.
Silver prices are also well-positioned after breaking through technical resistance at $21.20 and $21.35 to rally to their highest since 1980. It was later at $21.34 an ounce against $21.14.
The metal has seen strong investor interest as gold has rallied, with holdings of the world’s largest silver-backed exchange-traded fund, the iShares Silver Trust, rising to an all-time high of 9,582.59 metric tons on Thursday.
“A sizeable factor underlying the current performance of the precious metals sector as a whole arrives from portfolio managers who, in an effort to erode less impressive market returns earlier in the year, are putting money to work in gold, but also silver, platinum and palladium,” UBS analyst Edel Tully said in a note.
“While gold’s investor audience continues to evolve, the rest of the precious metals have been on the receiving end of ‘new’ interest over the past two months.”
Platinum was at $1,643.50 an ounce against $1,638.10, while palladium was at $554.35 against $550.95.