Gold hits record, silver soars on dollar decline

By Frank Tang

NEW YORK (Reuters) – Gold rose to a record high for a fourth straight day and silver surged on Friday, as a weaker dollar, the prospect of a U.S. government shutdown and inflation worries lifted precious metals in a broad commodities rally.

Gold notched its biggest weekly gain in four months, drawing support from renewed euro zone sovereign debt fears amid Portugal’s financial crisis and inflation jitters as crude oil and corn hit new highs this week.

Bullion broke above key resistance on technical charts and could target above $1,500 an ounce. The metal has risen more than 10 percent since late January when political unrest began to flare in the Middle East and North Africa.

“With the expected future inflation being higher in this low interest rate environment, investors are more inclined to have some contributions to commodities as an inflation hedge,” said Hakan Kaya, commodities portfolio manager at Neuberger Berman, which manages about $190 billion client assets.

Spot gold rose as high as $1,474.60 an ounce and was later up 1 percent at $1,471.74 an ounce by 2:53 a.m. EDT. Bullion gained 2.5 percent this week for a fourth straight weekly gain. U.S. gold futures for June delivery settled up 1 percent to $1,474.10.

Gold remained far below its all-time inflation-adjusted high, estimated at almost $2,500 an ounce set in 1980, an era of Cold War tension, oil shocks and hyperinflation.

U.S. futures activity was sharply below average for a second day, but analysts said low volume was not detrimental to the metal’s bull run.

Gains in other commodities also lifted precious metals, as crude oil futures soared to their highest since 2008 and the Reuters/Jefferies CRB (.CRB: Quote, Profile, Research) index rose 1.2 percent.

Silver rose 2.4 percent to $40.50 an ounce, just off the session high of $40.73.

The gold-to-silver ratio — the number of silver ounces needed to buy an ounce of gold — fell to a 28-year low toward 35 on Friday. (Graphic: http://r.reuters.com/myt88r)

“One would expect silver to outperform in this environment because it bears a higher risk than gold on a volatility basis,” Kaya said.

On charts, gold breached important technical resistance at $1,466 an ounce near Thursday’s high, said Rick Bensignor, chief market analyst at Dahlman Rose.

If bullion could hold above $1,466 early next week, it should next target an area between $1,500 and $1,510 an ounce, Bensignor said.

DOLLAR WEAKNESS UNDERPINS

The dollar’s 1 percent slide to a 15-month low against the euro added fuel to a rally that has taken gold to a series of record highs.

The dollar slid on a stalemate in Washington over U.S. government funding.

The looming U.S. government shutdown was “simply a minor problem of far greater problems,” said Camilla Sutton, chief currency strategist at Scotia Capital. She said she expected the dollar to remain weak this yea.

Analysts said the dollar could further weaken because of the widening interest rate differentials after ECB’s first interest rate hike after the 2008 financial crisis on Thursday.

Federal Reserve policy remained in focus. [ID:nN08214099] Atlanta Fed President Dennis Lockhart said it was unlikely recent spikes in commodity costs would lead to runaway increases in prices, but Dalls Fed president Richard Fisher said prolonged easy monetary policy could compound what might otherwise be transitory inflationary pressures.

Gold has been a major beneficiary since the Fed has kept short-term rates near zero since December 2008.

Among other precious metals, platinum gained 1.3 percent to $1,803.74 an ounce, while palladium jumped 2.2 percent to $791.97. Prices at 2:52 p.m. EDT.

(Additional reporting by Julie Haviv in New York, Jan Harvey in London; Editing by David Gregorio)

Gold hits record, silver soars on dollar decline