Gold hits record, set for best week in six months

Thursday, 7 October 2010 23:05 - - {{hitsCtrl.values.hits}}

(Reuters) - Gold rose to a third successive record high on Thursday, putting it on track for its strongest weekly performance in six months, as expectations for the Federal Reserve to prop up the economy undermined the dollar.

The Fed is widely expected to resume quantitative easing -- in which the central bank would buy government bonds for example and pump extra cash into the financial system to keep interest rates low -- which has pushed the dollar down 7 percent against a basket of currencies in the last month.

Gold, which usually benefits from dollar weakness due to its inverse relation with the U.S. currency, has gained nearly 10 percent in the same period.

Spot gold was last at $1,359.75 an ounce at 0938 GMT, up from $1,345.80 late on Wednesday, but down from an all-time peak of $1,364.60 struck earlier in the day.

The price has risen by 3.2 percent so far this week, its largest weekly rise since mid-April.

U.S. gold futures for December delivery hit a fresh record high at $1,366 an ounce, before easing slightly to show a 1 percent gain on the day at $1,361.00.

"We look at the reasons for holding gold and other precious metals and, above everything else, it is the idea of a store of value to protect against currency debasement," said Natixis strategist Nic Brown.

"Whether you're undergoing quantitative easing or whether you're devaluing your currency against others, it all adds up to pretty much the same thing."

"As a consequence, governments are delaying any fiscal austerity, while monetary authorities are rolling out additional quantitative easing measures over and above the exceptionally low interest rates that are already in place, that is just good for gold."