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.

Gold at $1,300 makes for a hot headline but the fact of the matter is that most investors don't own gold in their portfolios and there is still time to buy. Most analysts think the most recent rally is ready for a breather and gold could see some short-term profit-taking or even a mild correction.

Record high prices also mean that physical demand out of emerging market countries like India will wane. Indian consumers are very price sensitive and according to recent reports, physical buying increases the closer gold gets to $1,200 but buying tapers off as prices rise.

The trend for jewelry buying is that consumers slowly have to get comfortable with higher prices. They have over the past 10 years as prices have risen from $282 to $1,300 but their buying lags fund buying. Investment demand accounts for only 25% of total global gold demand, while jewelry demand is still 60%, so gold needs strength from both areas to move higher.

"There's still a lot of opportunities there," says Phil Streible, senior market strategist at Lind-Waldock, "I think that any kind of nibbling away at some options and some futures below $1,300, if you can get the opportunity ... Pick on a correction, definitely consider that."

Silver prices were also hitting record highs, their best since 1980. Silver, considered the poor man's gold, also has become a favorite of investors looking to diversify into precious metals. Prices settled up 18 cents to $21.39 while copper closed higher by 2 cents at $3.61.

Most Recent Quotes from www.kitco.com

Gold mining stocks, a risky but potentially profitable way to buy gold, were rallying modestly. Yamana Gold ( AUY) was flat at $11.07 while Freeport McMoRan Copper & Gold ( FCX) was adding 3.44% at $87.12. Other gold stocks New Gold ( NGD) and Gold Fields ( GFI) were trading at $6.37 and $15.02, respectively.

-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

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