US GOLD - Comex gold punches through to new record, eyes more gains

New York, 16 September 2010 - The bulls continue to run as Comex gold futures touched a new all-time high Thursday morning and $1,300 per ounce is now in plain sight.

Gold for December delivery in New York recently traded at $1275.60 per ounce, up $6.90, from the previous day's settlement. Earlier in the morning, the yellow metal hit a new record price of $1279.50.

"This is a pattern that will likely continue in the near-term as prices move past $1,300 and towards $1,350. The focus is turning towards the Fed meeting next week and whether or not they will move into further quantitative easing. That seems to be the bullish factor du jour," Tom Pawlicki, a precious metals and energy analyst at MF Global, said.

Pawlicki, however, did note that the gold market has become separated from supply/demand dynamics.

"This rally isn't getting much fundamental support. Physical demand is weak and is only going to soften further as prices increase. That would would lead me to believe that this is led by investors, but then I read about declines in ETF holdings. So in someways it's puzzling that gold has has moved up as it has," Pawlicki said.

The world’s largest gold ETF, SPDR Gold Trust, recorded outflows of nearly 4 tons yesterday.

The price of gold is being driven by QE speculation and factors outside the fundamentals, Pawlicki said.

"There's still this prospect of sub-par economic recovery or even the possibility of a double-dip recession. Both of those are favorable for gold and I suspect that we could rally on those arguments alone," he said.

Standard Bank said that due to the latest push in gold, physical demand has dried up.

"This pattern has repeated itself in the past, with demand falling away when the gold price rises fast. However, we expect demand to return should gold settle in a range for a few days," the bank analysts said.

It has also been another difficult morning for the dollar as the the euro moved up to 1.3115 shortly after the Philly Fed Index showed that general business activity for factories in its district dropped to minus 0.7 in September against exceptions of a 0.9 percent gain.

That negative news overwhelmed some mildly positive US weekly initial jobless claims and producer price inflation data from earlier in the morning.

In other precious metals, silver on the Comex was recently up 22 cents to $20.79 per ounce, which is a 26-month high, while the October contract for platinum on the Nymex was trading at $1616.40, up $11.10.

"Silver remains in high demand as a cheaper alternative to gold," Commerzbank analysts said in a note. "The largest silver ETF, iShares Silver Trust, has recorded strong inflows of 36.5 tons. The gold/silver ratio has fallen from a good 68 to 61.5 in the past four weeks, but silver still has a low valuation compared to the spring of 2008, when the ratio was a good 50. We therefore see further catch-up potential here."