The dollar fell to an eight-month low against the euro after Japan’s decision to lower interest rates and buy $60 billion of assets bolstered expectations the Federal Reserve will take more steps to reinforce growth. Gold has climbed 23 percent this year as low rates made the metal more competitive against bonds and cash. Unlike bonds, gold doesn’t pay interest.
“More quantitative easing means de facto lower interest rates, so gold becomes more competitive,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland.
Gold for immediate delivery climbed $7.40, or 0.6 percent, to $1,348.05 an ounce at 8:57 a.m. in London after earlier today trading as high as $1,349.80 an ounce. Futures for December delivery gained 0.7 percent to $1,349.30 an ounce on the Comex in New York, after rising as high as $1,351. Gold rose to the highest since at least 1971 in Canadian dollars, the highest since June 28 in Japanese yen and the most since June 21 in British pounds.
The Fed has kept the main interest rate between zero and 0.25 percent since December 2008 to revive the economy. The central bank also purchased $1.25 trillion in mortgage-backed securities in an effort to push down mortgage rates to support housing.
The first U.S. quantitative easing translated into an 8 percent increase in gold prices 12 months later, according to Bank of America-Merrill Lynch. The second round of easing is estimated at $500 billion to $750 billion by the first quarter of 2011, according to Merrill Lynch.
Silver for immediate delivery jumped as much as 1 percent to $23.0763 an ounce, the highest since Sept. 24, 1980. Platinum climbed to $1,707.50 an ounce, the most since May 17, and palladium rose to $593.25 an ounce, the highest since March 4, 2008.
Bullion has outperformed global equities and Treasuries this year, prompting record investment in gold-backed exchange- traded products.
Gold assets in ETPs rose 0.6 metric ton to 2,094.9 tons as of Oct. 5, according to data compiled by Bloomberg from 10 providers. Holdings are up 17 percent this year and reached an all-time high of 2,097.01 tons on Sept. 30.
Holdings in the iShares Silver Trust, the biggest exchange- traded fund backed by the metal, climbed 94.32 tons to a record 9,877.20 tons as of Oct. 5, according to the company’s website.