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Gold Prices Glitter at $1,300

NEW YORK ( TheStreet ) -- Gold prices broke $1,300 an ounce Friday as a weak dollar and momentum buying pushed gold past the psychologically important price level.

Gold for December delivery settled $1.80 higher at $1,298.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,301.60 and as low as $1,290.60 in Friday's session.

The U.S. dollar index was losing 0.93% to $79.37 while the euro rallied 1.18% to $1.34 vs. the dollar. The spot gold price Friday was adding $3.90, according to Kitco's gold index.

Gold prices broke $1,300 as a stronger euro pushed the U.S. dollar lower. The euro was rallying after a better-than-expected second-quarter gross domestic product reading from France and a positive business confidence number out of Germany.

Gold is priced in dollars so a weaker dollar makes gold cheaper to buy in other currencies. Also a devalued dollar makes gold more appealing as a safe-haven investment. Gold got additional support from a disappointing August U.S. new-home sales report.

The expectation for the past week among gold analysts was that speculative fund buying was going to push gold past $1,300. Although the number looks sexy, in the end it's just a number.

"Round numbers are generally more of a psychological impact," says Jon Nadler, senior analyst at Kitco.com, rather than a fundamental shift for gold prices.

In fact, Nadler argues that "given the reading of the tea leaves [by speculative funds] into what the Fed statement meant [in their minds]" gold should have hit $1,320 midweek, which "leaves us with options expiration [next week] as the culprit."

The Federal Reserve at its last FOMC meeting Tuesday said that it was "prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

The Fed still expects growth for the U.S. economy for 2010 to be between 3%-3.5%. If the Fed lowers its expectations, the stage could be set for more money-printing to increase inflation and pump more money into the banking system. The August core Consumer Price Index is just up 0.9% from year-earlier levels while the Fed's inflation ceiling on the low end is 1.5% leaving a lot more "safe" room for expansion in monetary policy.

Gold prices saw a double-digit rally on Wednesday as traders digested the Fed news but weren't able to break $1,300 until this morning. The popular gold exchange-traded fund, SPDR Gold Shares, currently holds 1,301.4 tons, slightly lower than its June record high of 1,320 ton, which was hit as gold prices touched their then intraday high of $1,266 an ounce.
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