Spot gold climbed above $1,282 an ounce in New York and London as a weakening dollar spurred demand from investors for wealth protection, while silver rose to $21.44 an ounce, its highest level since 1980.
Bullion, which usually moves inversely to the dollar, posted its biggest weekly gain since May as the greenback touched a five-week low against the euro.
Holdings in gold- backed exchange-traded products (ETP) reached a record this month as investors sought protection from financial turmoil and the prospect of slowing economic growth.
The surge in gold prices is being partly driven by a "complete lack of confidence in the governments of the world being able to sort out their financial mess," Gary Mead, senior commodity analyst with VM Group, a London-based commodity strategist firm told CNNMoney.com.
Gold has chalked up a 17% gain this year, and is heading for its 10th consecutive annual increase, the longest winning streak since at least 1920, according to Bloomberg News. The yellow metal has outpaced returns on global equities, Treasuries and most industrial metals.
Bullion has rallied as central banks and governments have kept interest rates at record lows and spent trillions of dollars to stimulate economies. President Barack Obama said last week that the U.S. economic recovery has been "painfully slow." The administration forecast this year's deficit will hit a record $1.47 trillion and $1.41 trillion next year.
"Gold is where money should be at this juncture. Now that bullion breached the record again, it will probably continue rising." Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul told Bloomberg. "Uncertainties over the global economic recovery as well as the financial market persist."
Global holdings of gold by ETPs reached a record 2,081.38 metric tons on Sept. 1, and were little changed yesterday at 2,077.9 tons, according to Bloomberg data compiled from 10 industry sources. Global silver ETP assets were unchanged at 13,211.9 tons yesterday, the highest level in at least seven months, data from four industry providers showed.
Government purchases may also be supporting higher bullion prices.
"Following the purchase of 10 tons of the International Monetary Fund (IMF) gold by the central bank of Bangladesh last week, rumors abound of official sector buyers coming into the market, and gold is clearly in focus as a reserve asset in the current macro and financial climate," Marcus Grubb, managing director of investment at the World Gold Council told The Guardian.
News that AngloGold Ashanti Ltd. (NYSE: AU), Africa's largest gold producer, had raised $1.53 billion through a share and convertible issue to cancel gold hedges also represented a strong vote of confidence in the market, he said.
Goldman Sachs Group Inc. (NYSE: GS) said Friday that gold has further to rise, giving the metal a six-month target of $1,300 an ounce. Any resumption of economic stimulus measures, such as quantitative easing, "would likely accelerate the move to our six-month price target and provide upside risk to our forecasts", Goldman wrote in a report.
"We believe that near-to-medium-term fundamentals remain most constructive for crude oil, copper, platinum and corn, with short-term risk/reward looking the best for crude oil," Goldman said in a report. "We maintain an overweight recommendation to commodities."
Peter D. Schiff, President and chief global strategist at Euro Pacific Capital Inc., wrote in a recent Money Morning article that physical bullion should comprise at least 5% of investors' holdings.
"Aside from the likelihood that gold and silver will rise in price, precious metals offer timeless benefits, such as financial privacy, elimination of counter-party risk (if you store them yourself), as well as protection from government confiscation, onerous securities regulation, and punitive tax rates," Schiff said.
Money Morning Contributing Editor Peter Krauth, a well-known commodities expert who is also the editor of the Global Resource Alert says there's no substitute for physical gold.
"There's nothing like holding a gold coin or gold bar in your hands. This is the oldest and most direct form of gold ownership," Krauth, recently said in an interview.
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