Gold Futures Could Add to Gains

NEW YORK—Gold prices could rise to as high as $1,300 an ounce in the near-term as inflation concerns and the likelihood of continuing dollar weakness draws buyers.

Gold prices set a record Wednesday, building on a string of hefty gains this month.

The nearby November contract rose $12.10 to $1,114, after setting an intraday record of $1,117.60 on the Comex division of the New York Mercantile Exchange. Most-active December gold also rose $12.10, to $1,114.60. Spot gold hit $1,118.70.

The November gold contract has risen nearly 7.2% this month and is up 26% for the year.

The dollar is likely to remain weak as long as U.S. interest rates remain low, making gold an attractive alternative to paper currency.

The Federal Reserve said inflation remains in check for now, allowing the central bank to keep interest rates low. Still, some of those buying gold see rising prices over the longer term and are seeking safety in hard assets.

Given the nearly straight-line price rise, gold could experience some selling by those who bought at lower levels, but that would be temporary, said Stephen Platt, analyst with Archer Financial Services. "It's still a hard asset play against the weakening dollar, and until those assumptions change, the market won't back off to any degree," Mr. Platt said.

He added that gold rising to $1,180 to $1,200 is "something that's certainly possible" should the current weak dollar play continue.

Last week, gold got an additional boost on news that India's central bank bought 200 metric tons of the 403.3 tons the International Monetary Fund was planning to sell. A metric ton equals 2204.62 tons.

"The speculative community has been expressing interest regarding this India development," said Bart Melek, global commodity strategist at BMO Capital Markets. "There could be large buyers in the wings should additional gold hit the market."

He sees gold peaking on an annual basis at $1,100, but in a "robust scenario that could easily unfold" prices could move up to $1,300 on an annual basis.

The price rise has discouraged buying by the traditional supporters of gold - the jewelry sector - but the investment buying has more than made up for slack business. Even the scrap metal sales to capture the price rise have not dented gold's gains.

"If you look at the fundamentals, the increasingly high gold prices have rationed demand from physical buyers like jewelry stores, but not so much for investors looking at precious metals mutual funds or ETFs," Tom Pawlicki, precious metals analyst with MF Global.

Given gold's extended winning streak, some analysts believe the rally may be in for some sort of retrenchment. Unless the dollar "goes into a short term spiral," gold may be due for a pull back in the next couple of weeks, said Michael Gross, broker and futures analyst with OptionSellers.com.

In other commodity markets:

SUGAR: Prices rose as buyers saw bargains following recent losses. The market also was supported by general commodity market strength. March sugar rose 0.76 cent to 22.67 cents a pound on ICE Futures U.S.

CRUDE OIL:Prices rose slightly after China reported that its October oil imports were the second highest on record, and as traders braced for potential surprises in U.S. oil-inventory data due out Thursday. Light, sweet crude for December delivery rose 23 cents, or 0.3%, to $79.28 a barrel on the Nymex.

By MATT WHITTAKER And KELLY NOLAN

NOVEMBER 11, 2009,