Bloomberg: Gold Rises to 16-Year High; Dollar Falls to Record Against Euro

Gold Rises to 16-Year High; Dollar Falls to Record Against Euro

Nov. 17 (Bloomberg) -- Gold prices in New York rose to a 16- year high as the dollar fell to a record against the euro for the fourth time in two weeks, increasing the appeal of precious metals as an alternative to stocks and bonds.

U.S. Treasury Secretary John Snow signaled he won't back any agreement to stem the dollar's slide. Gold, sold in the U.S. currency, has risen 9.4 percent in the past three months as the euro climbed.

``At the moment, all the fundamentals for gold are positive,'' said Bernard Hunter, director of precious-metals marketing for the Bank of Nova Scotia's ScotiaMocatta unit. ``The world is looking for a weaker dollar'' and gold may rise to $450 an ounce by the end of the year, he said.

Gold futures for December delivery rose $4.60, or 1 percent, to $445.10 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier reached $445.40, the highest for a most-active contract since August 1988. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

The streetTRACKS Gold Trust, offered by the World Gold Council, won regulatory approval yesterday to sell as many as 120 million shares on the New York Stock Exchange. The trust first filed documents with the Securities and Exchange Commission for the sale in May 2003.

The trust plans to sell 2.3 million shares, backed by 230,000 ounces of bullion, through underwriter UBS Securities LLC. The shares, each backed by a 10th of an ounce of gold, will allow investors to avoid incurring costs of storing and transporting physical bullion.

The London-based World Gold Council is backed by some of the world's biggest producers.

`More Liquidity'

``Any product that makes the metal more freely available to the investment or the retail community has got to be good for the market,'' ScotiaMocatta's Hunter said. ``It provides more liquidity and a greater depth.''

U.S. consumer prices climbed 0.6 percent in October, the biggest gain since May, signaling accelerating inflation. Prices this year have risen at a 3.9 percent annual rate, compared with a 2.2 percent rate a year earlier. Excluding food and energy, prices are rising at a 2.4 percent annual pace, up from a 1.3 percent rate a year earlier.

``Sensitive indicators of excess monetary liquidity like gold and the dollar suggest that the Federal Reserve remains in a hyper-accommodative monetary posture,'' Michael Darda, chief economist at MKM Partners LLC in Greenwich, Connecticut, said in a report today.

``Price pressures are increasingly likely to be passed on, which could push year-to-year core inflation rates to 3.5 percent or higher during the next several quarters,'' Darda said.

Some investors buy gold in times of inflation, which erodes the value of fixed-income assets, such as bonds. Gold futures surged to $873 an ounce in 1980, when U.S. consumer prices rose 12.5 percent from the previous year.

To contact the reporter on this story:
Choy Leng Yeong in Seattle at clyeong@bloomberg.net