Nervous Investors Bid Up Gold Prices

Gold prices were surging Friday as worries about the financial system combined with higher oil prices and tensions in the Middle East to boost demand for the metal.

Benchmark bullion futures were gaining $23.90 at $965.90 an ounce in recent action on the Comex division of the New York Mercantile Exchange.

The dollar was retreating against the euro, the British pound and the Japanese yen. The price of dollar-denominated assets, such as gold, tend to rise as the value of the U.S. currency drops.

"There are any number of reasons for people to be concerned about the world, and investors are responding by purchasing large amounts of gold and silver," says Jeff Christian, managing director at New York-based specialty commodities research firm, CPM Group.

In particular, he cited worries about the health of Fannie Mae(FNM), Freddie Mac(FRE) and Lehman Brothers(LEH), along with jitters about Iran's saber-rattling.

Historically investors have purchased gold as a safe-haven investment during times of financial and political turmoil. They also buy it as a hedge against consumer price inflation, so when oil, a key driver for inflation, reaches new or record highs -- as it did Friday -- demand for the metal also tends to increase.

Christian sees a possibility that prices could breach the $1,200 level. The previous record high around $1,030 was reached on March 17, the day that JPMorgan Chase(JPM) bailed out beleaguered investment bank Bear Stearns.

The CurrencyShares Euro Trust(FXE) and the CurrencyShares British Pound Sterling(FXB) were both higher by 0.8%. The CurrencyShares Japanese Yen Trust(FXY) was rising 1%.

The SPDR Gold Trust(GLD), was up 1.8%. Among companies, Goldcorp(GG) was rallying almost 6%.

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