Gold shines as inflation fears rise

After pausing for breath late last month, gold has taken off again over the past few days, approaching $990 an ounce early this week before dropping back to around $960 as traders took profits; it then headed up to a new record over $990. And the long-term bull run looks far from over.

Last week's tumble in the greenback was prompted by Fed chairman Ben Bernanke's evident intention to cut rates further despite high inflation. His desperate dash for growth at the expense of higher prices means "investors are being handed engraved invitations to protect their wealth by getting into the prime inflation hedges: precious metals", says Chris Weber on Kitco.com.

Higher oil prices are also fuelling inflation fears, while ongoing credit jitters and the prospect of a nasty recession in the US are bolstering gold's appeal as the ultimate safe haven and store of value. Higher inflation expectations amid commodities' strong recent run and continued dollar weakness should continue to underpin investment demand for gold, said Standard Bank.

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With investment demand showing no sign of abating, the possible sale of 400 tonnes of IMF gold should be easily absorbed over time, as Fxstreet.com points out. Speculators have continued to buy gold despite rising prices, said Martin Hutchinson on Breakingviews.com, and as long as real global interest rates are low, this is likely to continue. Given that there is far more money available to invest now than in 1980, gold may well exceed the 1980 peak of $2,250 in today's dollars.