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Gold near 3-week high on weak dollar, inflation

  Gold rose to its highest level in nearly three weeks on Thursday as the dollar tumbled and inflation concerns flared after the US Federal Reserve unveiled plans to spend $300 billion on long-dated Treasuries.

Bill O’Neill, managing partner of LOGIC Advisors said that the Fed’s move highlighted gold’s value as an inflation hedge. “It also points out that, if the Fed took such dramatic moves, there are still some serious problems out there, and it certainly renewed the flight to safety buying,” O’Neill said.

Spot gold rose to a peak of $961.50 an ounce, its highest since February 27. It was at $958.90 an ounce at 3:43 p.m. EDT, up 1.4% from its last quote $940 in New York late Wednesday.

US gold futures for April delivery settled up $69.70, or 7.8%, at $958.80 an ounce on the COMEX division of the New York Mercantile Exchange.

Calyon metals analyst Robin Bhar said while the weaker dollar was benefiting all commodities, it was the longer-term implications of the Fed’s move for inflation that was largely driving gold higher. “This will boost the amount of dollars in the system, it will boost money supply, and it will boost inflationary expectations down the road,” he said.

Gold has long been seen as a key inflation hedge. The dollar extended a sell-off after a 3% slide on Wednesday -- its biggest one-day drop since at least 1985 -- after the US central bank announced plans to flood the market with dollars.

Gold traditionally moves in the opposite direction to the dollar as it is often used as a currency hedge, while a weaker dollar makes gold cheaper and more attractive for holders of other currencies.

Central banks in Britain and Japan have already announced they would purchase their respective government debt, while the Swiss National Bank last week said outright it would sell francs to weaken its currency.


A rise in gold-backed exchange-traded funds and investment in gold production also suggested support for gold. Holdings of the world’s largest gold-backed ETF, the SPDR Gold Trust, rose to a record 1,084.33 tons by March 18, up 15.28 tons or 1.4% from the previous day. (Reuters)