Gold Prices Hit New Record, Eye $1,300

Gold prices rallied Thursday as inflation fears spiked.
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NEW YORK (

TheStreet

) --

Gold prices

hit new record highs Thursday as inflation fears once again jump-started buying of the safe-haven asset.

Gold for December delivery settled up $5.10 to $1,273.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Thursday has traded as high as $1,279.50 and as low as $1,266.10.

The

U.S. dollar index

was losing 0.26% to $81.28 while the euro was adding 0.64% to $1.30 vs. the dollar. The spot gold price Thursday was rising more than $5, according to Kitco's gold index.

Investors piled into gold again as worries surfaced over inflation all over the globe. The core producer price index in the U.S. rose an unexpected 0.4% in August.

The data comes after news that the Reserve Bank of India increased its repo rate and reverse repo rate to 6% and 5%; the latter was higher than expected. The central bank will now charge more for short-term loans it makes to commercial banks as well increasing the amount of money it will pay for loans from commercial banks.

The end result is to take money out of circulation. The hope is that the commercial banks will borrow less and hopefully store more money with the Reserve Bank to take advantage of better interest. Gold is the go-to investment when inflation fears spike because gold is a currency that retains some value when paper money weakens.

Preventing Your Government From Stealing Your Gold >>

The Reserve Bank of India's move comes two days after the U.K's. higher-than-expected inflation reading and a day before Friday's U.S. core consumer price index report, which will be another inflation indicator for the U.S. The index only rose 0.1% in July and no change is expected for August.

There have been rumors that the

Federal Reserve

would buy more government bonds, effectively lending more money to the U.S. government. Although the central bank governors are reportedly struggling for a consensus, any hints of running printing presses could lead another surge into gold.

"What you're seeing is widespread belief that the central bank will engage in widespread additional quantitative easing," said Brian Kelleher, senior vice president of ETF Securities. "So investors are turning to gold as a way to protect against the falling value of the U.S. dollar and other fiat currencies."

The uncertainty in the currency market is also helping boost gold prices. The Bank of Japan has been trying to depreciate its currency to increase exports and help the country make more money. Despite Japan's best efforts,

the yen was rising 0.23% vs. the dollar.

There are also questions as to whether China will take even more efforts to slow growth and cool the mortgage market like forcing banks to raise the amount of money they hold in their reserves. The general mood of uncertainty makes gold even more attractive as a wealth preserver.

Rob McEwen, CEO of

U.S. Gold Corp.

(UXG)

, believes that gold will hit $5,000 but that there will be consolidations along the way. "The trend is up ...

but I expect the volatility in the gold price to become greater." Big price spikes are typically followed with profit-taking.

The popular gold exchange-traded fund,

SPDR Gold Shares

(GLD) - Get Report

, off-loaded almost 4 tons Wednesday as investors took advantage of record high prices. McEwen says recent $30 daily moves could increase to $100 price swings. "For most people looking at gold I recommend that they become patient they have to look at gold as money ... it's an alternative to a euro, or a yen, or a dollar."

Despite all the inflation and currency worries, gold prices did lose some of their early-morning steam on improving initial jobless claims, which fell 3,000 last week to 450,000.

Silver prices

settled up 20 cents to $20.77, hitting another recent high, while copper closes down 2 cents to $3.49.

Video: Do Silver ETFs Make Good Investments? >>

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Gold mining stocks

, a risky but profitable way to

buy gold

, were mostly higher Thursday.

Kinross Gold

(KGC) - Get Report

was up 4.84% to $18.43 while

Freeport McMoran Copper & Gold

(FCX) - Get Report

was flat at $81.28. Other gold stocks

New Gold

(NGD) - Get Report

and

Gold Fields

(GFI) - Get Report

were trading at $6.04 and $15.17, respectively.

--

Written by Alix Steel in New York.

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