A weak U.S. dollar and chart-based buying enabled December gold Tuesday to hit a record high for any most-active contract ever traded on the Comex division of the New York Mercantile Exchange.
The contract peaked at $1,045 an ounce, taking out the previous most-active record of $1,033.90 in March 2008.
Additionally, October gold has been as muscular as $1,043.80, a record for a nearby contract. Also, cash gold hit the same record high price, according to one price vendor.
December gold settled $21.90 higher at $1,039.70 an ounce. The metal rose in the wake of the euro hitting a high of $1.4764, compared with $1.4651 late Monday afternoon.
Gold, which began a bull market early in this decade, has been further boosted in recent weeks on concerns about the dollar and the potential for inflation when the global economy recovers, given the stimulus efforts from central bankers and governments around the globe. Investment demand has offset reduced demand in other sectors such as jewelry.
"A lot of participants are continuing to expect a lower dollar as we go into the end of the year," said Adam Klopfenstein, senior market strategist with Lind-Waldock. "It's very hard to sell commodities into a weak-dollar macro play that we're seeing right now."
Outside markets such as the dollar are the predominant focus for gold right now, rather than demand in key consuming nations such as India, he said.
The dollar was undercut - and gold supported - by an interest-rate hike in Australia, said Jim Steel, metals analyst with HSBC.
Further dollar pressure came from a report in the U.K. Independent newspaper saying some Middle Eastern nations, China and others were looking at abandoning the dollar as the principal pricing mechanism for oil, said Steel and Matthias Detremmerie, analyst with goldessential.com.
"That has since been denied," Steel said. "But it focused attention on the dollar's reserve-currency status and is very positive for gold."
Bill O'Neill, one of the principals with LOGIC Advisors, doubted any scenario shifting away from the dollar as a reserve petro currency is a likely valid probability for the foreseeable future.
"But it got the euro going, and the euro is up about a cent," he said. "And it started to bring some buying into gold. And then the market went through some technical resistance and spurted up to the high."
Detremmerie said buy stops - pre-placed orders to buy when certain chart points are hit - were first triggered in quiet, illiquid overnight trading.
On the December futures, he continued, buy stops were triggered around $1,020, $1,023 and $1,025. The market then took out the July 2008 high of $1,028 before extending still higher during open-outcry hours.
Funds were among the buyers, said George Gero, vice president with RBC Capital Markets Global Futures. He also saw some short covering, in which traders buy to offset positions in which they previously sold.
Klopfenstein said strength in equities also boosting gold. The Dow industrials are up by around 75 points. Mining stocks have been climbing Tuesday, with gold producers AngloGold Ashanti Ltd. (AU), Harmony Gold Mining Co. (HMY), Gold Fields Ltd. (GFI) and Randgold Resources Ltd. (GOLD) among the biggest gainers.
"There is an economic recovery back in the cards," Klopfenstein said. "We're starting to see risk-taking as an essential theme in the marketplace as we begin the fourth quarter."
Thus, market participants are also gravitating toward commodities such as gold, crude oil and silver, he continued.
Other precious metals have followed gold. "There is a general tidal wave higher, in other commodities as well," Steel said.
December silver closed up 76 cents to $17.295 an ounce. Meanwhile, January platinum rose $23.50 to $1,325.30 an ounce, while December palladium gained $7 to $310.30 an ounce.
Benchmark commodity indexes also were higher.
The Dow Jones-UBS Commodity Index gapped open higher and shot to a 2 1/2-week high of 128.910.
The Thomson Reuters Continuous Commodity Index notched more impressive gains, with speculative fund buying taking prices to a one-year high of 438.28.
Steel suggested the gold rally is showing no signs of diminishing. "What makes it look virulent is that it continues to go up despite the fact that Saudi Arabia and Russia have denied that there are any discussions about replacing the dollar for trading oil," he said.
-By Allen Sykora, Dow Jones Newswires; 541-318-8765; allen.sykora@dowjones.com
