Although gold has pulled back somewhat from record highs, it remains above $1,300 as the dollar weakens and investors continue to have faith in the metal as a refuge.
The most-actively traded gold contract, for December delivery, was recently up $1.20, or 0.1%, at $1,309.50 a troy ounce on the Comex division of the New York Mercantile Exchange. It hit a record intraday high of $1,314.80 in electronic activity overnight.
"We are getting some people taking profits," said Bob Haberkorn, senior market strategist with Lind-Waldock in Chicago. Nevertheless, the metal likely remains in an upward trend amid a variety of bullish factors, Haberkorn said.
The weakening dollar has been supporting the dollar-denominated metal by increasing demand from buyers using other currencies. Worries about other currencies have also been supporting gold as a broader alternative to paper money.
Ultra-low interest rates have been a backbone of support for gold by reducing the opportunity costs of holding the metal, which pays no interest itself.
Most recently, expectations have ratcheted up that the Federal Reserve will further ease monetary policy. This so-called quantitative easing is expected to include the purchase of Treasurys, which would pressure the dollar and boost gold as a hedge against the potential devaluation of the greenback.
Some believe such measures, and similar ones from other nations, will eventually lead to inflation, benefiting gold as a hedge against rising consumer prices down the road.
"With governments such as Japan, the U.S., Switzerland, the UK, Brazil, Korea, Taiwan, China and many others internationally devaluing their currencies there is a growing risk of inflation and indeed stagflation," according to a note from Dublin-based bullion dealer GoldCore.
In a statement following its meeting last week, the Federal Open Market Committee indicated it was concerned about inflation falling too far, and it said that if economic conditions call for it, the central bank would be prepared to offer additional support to the economy.
"If in six months or 12 months the economy is operating at the low level it is today and unemployment continues to be in the high 9's, I will be comfortable taking action then," Federal Reserve Bank of Atlanta President Dennis Lockhart said Tuesday. But, he also reiterated that he expected the economy to improve during that time period.
Meantime, fears about euro-zone sovereign debt issues have also been boosting gold as a so-called safe-haven investment, as have wider worries about the slow pace of the U.S. and worldwide economic recovery. Jitters have come this week as Moody's Investors Service downgraded the debt of Anglo Irish Bank, and a weekly German newspaper reported European Commission officials were worried about the health of several regional banks there.
Gold is considered a safer bet than some other commodities and equities in times of financial uncertainty because the precious metal isn't as linked to industrial cycles as those other investments.
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