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.

Marshall says the average investor is still not in the gold market, which is why he sees demand building and $1,500 gold "just around the corner."

"We're seeing gold on investment television stations ...

and as it plays more and more in the general press, it sparks more and more interest ... I do see new people coming in more and more."

Marshall says every pullback triggers more buying, which then helps push prices back up again. The most popular items are bullion coins, which have the purest gold, 24-karat, such as the American Buffalo and Canadian Maple Leaf.

Marshall says demand isn't just for gold but for the other precious metals as well, the most popular being palladium, which has popped 35% year to date.

Silver prices

were up 29 cents to $22.12 while copper was adding 3 cents to $3.69 on the back of strong manufacturing activity in China.

Image placeholder title

Gold mining stocks

, a risky but profitable way to

buy gold

, rallied Friday.

Yamana Gold

(AUY) - Get Report

was up 0.44% to $11.45 while

Freeport McMoRan Copper & Gold

(FCX) - Get Report

added 4.38% at $89.13. Other gold stocks

New Gold

(NGD) - Get Report

and

Gold Fields

(GFI) - Get Report

closed at $6.74 and $15.27, respectively.

Capital Gold

(CGC) - Get Report

was down 0.21% to $4.82 after the company accepted a merger deal with

Gammon Gold

( GRS) for $4.57 per share or $288 million. Gammon Gold beat out

Timmins Gold

, which announced a hostile bid on Monday for the smaller company for $4.50 a share.

Gammon Gold is almost three times the size of Timmins and will produce 100,000 to 110,000 ounces of gold this year, according to the company's Web site. Capital Gold owns and operates the El Chanate open pit gold mine in Sonora, Mexico, which is expected to produce between 65,000 and 70,000 ounces in 2011.

A press release from Gammon Gold said that the transaction would make the company "among the lowest cost producers in the industry." For the second quarter, Gammon produced 29,231 ounces of gold at a cash cost of $494, which was a 17% increase from the same period a year earlier.

This is not only the latest trend in M&A in the gold mining sector but also the most recent case of a larger company outbidding a smaller company, both in need of replenishing their gold reserves.

Goldcorp

(GG)

recently outbid

Eldorado Gold

(EGO) - Get Report

for

Andean Resources

, a deal Eldorado had been working on for years.

As gold demand grows, gold miners are feeling the pressure to replace their reserves quickly to take advantage of rising gold prices. Identitfiable investment demand grew 118% in the second quarter, according to the World Gold Council, spurred by skyrocketing exchange-traded-fund demand. The largest ETF

SPDR Gold Shares

(GLD) - Get Report

has added 179 tons of gold this year.

--

Written by Alix Steel in New York.

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