Nov. 6 -- Gold rose to the highest since 1980 as record oil prices and a slumping dollar increased concern that inflation will accelerate. Silver jumped to the highest in 26 years.
Oil surged as high as $97.07 a barrel in New York and the dollar extended its slide to the lowest ever against the euro, boosting the appeal of precious metals as an inflation hedge. Investment in the StreetTracks Gold Trust, an exchange-traded fund backed by bullion, has risen 32 percent this year to a record 598 metric tons.
``The falling dollar is the very definition of inflation,'' said Chip Hanlon, president of Delta Global Advisors Inc. in Huntington Beach, California, which manages about $1.2 billion. ``A weak dollar makes the cost of living for all of us go higher and gold is the best hedge against that.''
Gold futures for December delivery rose $14.40, or 1.8 percent, to $825.20 an ounce at 12:10 p.m. on the Comex division of the New York Mercantile Exchange. The price earlier climbed to $827.20, the highest for a most-active contract since Jan. 21, 1980, the day gold reached a record $873. Gold has rallied 29 percent this year, heading for the seventh straight annual gain.
Silver futures for December delivery rose 63.5 cents, or 4.3 percent, to $15.42 an ounce in New York, after earlier reaching $15.54, the highest for a most-active contract since Jan. 21, 1981. Before today, silver gained 14 percent this year.
The dollar fell to $1.457 against the euro, the lowest ever, on speculation losses related to U.S. subprime-mortgage defaults will prompt the Federal Reserve to reduce interest rates for a third time this year.
Gold gained 23 percent last year when the dollar dropped 10 percent against the euro. The dollar is down 9.3 percent against the euro in 2007 and has fallen 3.9 percent since Sept. 18, when the Fed lowered the overnight lending rate for the first time in four years. The Fed cut rates again by 0.25 percentage point to 4.5 percent on Oct. 31.
Five of the past six bear markets for the U.S. currency have resulted in a gold rally. Interest-rate futures indicate investors believe there is a 62 percent chance the Fed will lower rates to 4.25 percent by Dec. 11, compared with a 6 percent chance a month ago.
``Everyone should keep accumulating gold and selling dollars,'' said James Turk, founder of GoldMoney.com, which had $237 million of gold and silver in storage for investors at the end of October.
Turk expects gold to breach $1,000 in 2008. He correctly predicted last year gold would rise above $800 in 2007. ``Gold remains cheap and the dollar is still way overvalued,'' he said.
Adjusted for inflation, gold is still below its all-time high. Based on 1980 dollars, the January 1980 record of $873 would be $2,185.68 today.
Gold priced in other currencies has also gained this year. Gold denominated in euros has gained 17 percent in 2007 while gold priced in yen climbed 24 percent. Gold reached a record 395.89 British pounds today.
``This gold market is up, up and away,'' said Ron Goodis, futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``The dollar is going to keep skidding. We don't know if it's going to be a recession, inflation, stagflation. People want to buy gold.''
UBS AG today raised its one-month forecast to $850 from $700. National Bank Financial last week said gold would reach $900 in the next 12 months.
``With the two external drivers of gold -- a weak U.S. dollar and strong oil -- together conspiring to lift the metal higher, we are now in range of a move to the all-time nominal high of $850,'' said UBS AG analyst John Reade.
Gold for immediate delivery in London rose $16.90, or 2.1 percent, to $823.40. The spot price has averaged $677.64 this year.
Crude-oil futures traded higher on concern demand will outpace supply. Gold reached its record in January 1980 after oil costs doubled in a year, sparking a surge in the rate of inflation to 14.8 percent in March 1980.
Still, some investors caution gold's rally since mid-August may be overdone.
``The dollar, oil and gold have moved too far too fast and are ripe for substantial corrections,'' said Jim Pogoda, an investor in Summit, New Jersey, and a former precious-metals trader for Mitsubishi International Corp.
Speculative net-long positions on the Comex are near record highs. Hedge funds and other large speculators increased net- long positions, or bets prices will rise, to 198,606 contracts on the Comex as of Oct. 30, up from 186,304 a week earlier, according to the U.S. Commodity Futures Trading Commission.
The 14-day relative strength index for gold futures topped 80 today after staying above 70 for the past seven sessions. When gold's RSI last topped 80 on Oct. 1, the metal dropped $17.80 the next day.