Gold extends record run as dollar falls

The dollar took its first hit after Ben Bernanke gave his statement on holding all policies where they are at and then the dollar took a second hit after jobless claims were announced, both events driving up the value for precious metals.

By Claudia Assis and Nick Godt
April 28, 2011, 2:45 p.m. EDT

SAN FRANCISCO (MarketWatch) — Gold futures settled at a record Thursday as the dollar fell further on a jump in weekly jobless claims and data showing the U.S. economy grew at a slower pace in the first quarter.

The dollar had already been hit after Federal Reserve Chairman Ben Bernanke said Wednesday he would hold the central bank’s stimulative stance indefinitely.

Thursday’s macroeconomic reports reinforced the view that loose monetary policy is still needed to prop up the economy.

A weaker dollar lifts gold’s value as a safe-haven alternative to currencies. It also sent gold to an intraday record, and silver futures rallying.

Gold for June delivery GCM11 +1.25% rose $14.10 or 0.9%, to $1,531.20 an ounce on the Comex division of the New York Mercantile Exchange.

The contract traded as high as $1,538.80 an ounce, according to a preliminary tally on CME Group’s website. CME owns Comex.

“Bernanke basically said, ‘hey, we are going to let the U.S. dollar just get crushed,’” said Michael K. Smith, with T & K Futures and Options Inc. in Florida.

Silver was likely to hit a top but Wednesday’s Fed action gave it extra room for more rallying, he added.

May silver SIK11 +5.55% added $1.56, or 3.4%, to $47.52 an ounce. The contract traded as high as $49.52 an ounce earlier.

In January 1980, spot silver hit an intraday record of $50.35 and a settlement record of $48.70 an ounce.

Silver’s July contract SIN11 +5.53% added $1.44 to $47.54 an ounce.

If silver can’t hold above $50 this session or on Friday, prices are likely to correct steeply, Smith said. Unlike gold, which has risen “in a much more orderly fashion,” silver is vulnerable to trading down to $41, $42 an ounce, he added.

The dollar index DXY -0.53% , which measures the U.S. unit against six major currencies fell to 73,114 from 73.284 in North American trade late Wednesday.

Traders grappled with news the U.S. grew at a slower pace in the first quarter and that initial jobless claims jumped last week.

The U.S. economy grew 1.8% in the first three months of the year, markedly slower than the 3.1% pace in the prior quarter. Read more about first-quarter GDP.

Initial jobless claims rose last week to their highest level in three months, the Labor Department said Thursday. See more about jobless claims.

Other metals also got a lift on Thursday, with July copper HGK11 +0.41% up 1 cent, or 0.4%, to settle at $4.26 a pound.

July platinum PLN11 +1.31% rose $20.70, or 1.1%, $1,839.90 an ounce. June palladium PAM11 +2.43% rose $17.20, or 2.3%, to $775.30 an ounce.

Bernanke held the first-ever news conference by a Fed chief, following a widely expected decision to leave the interest-rate target unchanged near zero on Wednesday. Read more about Bernanke’s conference.

Although the Fed held onto its timetable to end its $600 billion bond-buying program in June, Bernanke also maintained the Fed’s plans to reinvest principal payments, thereby keeping monetary stimulus in place.

With interest rates near zero, ending the re-investment policy would have amounted to a first tightening of monetary policy, says Barclays Capital Research analyst Michael Gapen.

“Altogether, the statement, press conference, and updated set of economic projections tell us that the Fed will likely be patient when it comes to the eventual removal of policy accommodation,” Gapen wrote in a note. “We do not expect an increase in the federal funds rate until July 2012.”

Also helping lift the precious metal on Wednesday was an announcement by Standard & Poor’s that it may downgrade Japan’s sovereign-credit rating if the country’s fiscal situation deteriorates more than expected after the March quake disaster.

“The possibility of Japan being downgraded has seen the yen join the dollar under pressure,” analysts at GoldCore said.

But the yen bounced back after the Bank of Japan held policy steady while rejecting a proposal to boost the size of its asset-buying program. Read more about the Bank of Japan’s policy meeting.

Claudia Assis is a San Francisco-based reporter for MarketWatch. Nick Godt is a MarketWatch reporter based in Mumbai.

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