Dollar's Dive Drives Gold

A slumping dollar helped propel gold higher Friday, and observers say there could be more to come.

Prices for February delivery of gold were recently surging $9.50 at $644.90 an ounce on the Chicago Board of Trade, and the exchange-traded funds, which hold the metal, followed suit. Shares of streetTracks Gold Shares and iShares Comex Gold Trust(IAU Quote), were up 1.7% and 1.3%, respectively.

The dollar, which tends to move inversely with changes in the value of bullion, crossed the psychologically important $1.30 level vs. the euro. Recently the euro was buying $1.3088, up from $1.2942 late Thursday and its highest level since April 2005. The greenback was also losing against the yen, hitting a 3-month low of 115.73 yen vs. 116.27 yen previously. (Click here for more on the dollar's decline.)

"I don't think this is the end of the dollar weakness," says Paul Tustain, founder of U.K.-based BullionVault.com, which provides an e-trading platform for retail gold investors. "A reality check needs to come on U.S. finances or the dollar will weaken further."

Tustain says he's seen robust demand recently from buyers who want to hold physical metal and remains bullish for the longer term.

On the technical side, some observers see price consolidation on the cards, at least for a while. "A pullback wouldn't surprise me as resistance kicks in at current prices," says Larry Levin, president of Chicago-based SecretsOfTraders.com. "I have a feeling we'll trade sideways for a while."