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Gold Prices Break to New Highs

NEW YORK ( TheStreet) -- Gold prices were breaking to new highs Friday at the start of the fourth quarter on continued U.S. dollar weakness.

Gold for December delivery was rising $10.10 to $1,319.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Friday has traded as high as $1,322 and as low as $1,307.30.

The U.S. dollar index was slipping 0.84% to $78.06 while the euro rallied 1.06% to $1.37 vs. the dollar. The spot gold price Friday was adding more than $6, according to Kitco's gold index.

Gold prices got a pop this morning as the U.S. manufacturing index came in weaker than expected, falling to 54.4 in September. Although any number over 50 indicates growth, the slowdown reignited fears over growth problems in the U.S. and highlighted gold's appeal as a safe-haven asset.

"Clear path to next resistance ... will be $1,325," says George Gero, senior vice president and financial consultant RBC Capital Markets Global Futures. "Momentum traders are trying to catch up positions they sold earlier for profit-taking at month end."

Continued speculation that the Federal Reserve will bow to some form of monetary easing at its next meeting in November has also been helping gold and weighing on the dollar. The two forms of currency typically trade inversely as the price of gold, a dollar-backed commodity, is measured in a currency that is less valuable.

The dollar also has been losing steam as a potential currency war heats up in China. The House passed a bill on Wednesday that would allow American companies to lobby for higher taxes on Chinese imports. The goal is that American goods would become cheaper and more attractive to consumers while the U.S. government tries to pressure China to let its currency rise in value vs. the dollar.

Although the Senate is not likely to vote on the bill until after the midterm elections, the threat of an even weaker dollar has been helping gold prices rise. Gold has shrugged off a better-than-expected September manufacturing activity report from China, which expanded at its fastest pace in four months.

Gold prices rallied 6% in the third quarter and almost 5% in September alone, triggered in large part by hedge fund and momentum-buying. Gold's rally might spark some profit-taking at the start of the fourth quarter, but many analysts expect more of a rally from gold and the rest of the metals complex.

"The metals ... look set to post further gains on a mix of solid fundamentals, technical momentum and diversification from fiat currencies as investors edge towards tangible assets such as commodities," says James Moore, analyst at thebulliondesk.com.

Aside from strong investment demand, demand for the physical metal has also been strong despite record high prices.

Gregory Marshall, CEO of Global Asset Management, a wholesale bullion and coin dealer in the U.S., says he is seeing strong buying in the U.S. and Canada in all the precious metals. "[The U.S. Mint] can't keep up with demand ... the people who are entering the markets are trying to save themselves over the destruction of paper currencies," Marshall said.
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