gold

On Tuesday, gold settled at $983.20 a troy ounce, up 0.5%, and is now just 2% shy of its all-time high of $1,003.20 scored in March 2008.

Among the main drivers is the decline in the U.S. dollar — a result, many analysts say, of a conviction that the global economy is on the path to recovery, thanks to central banks’ stimulus efforts. Dollar-denominated commodities like gold typically rise when the dollar falls, as producers ask for higher prices and consumers outside the U.S. buy more. While the dollar has dropped 9% since mid-April, gold has gained 13%.

Also fueling the rally has been the fear that the Federal Reserve and others won’t be able to control inflation once those stimulus efforts kick in. Hard assets like gold are seen as a good hedge against rising prices as they tend to retain their value.

The rally has caught many in the market off guard. Gold has averaged $910 this year, surpassing analysts’ forecast of $881, as calculated by the London Bullion Market Association.

HSBC in May raised its 2009 gold forecast by $50 to $875 an ounce; French investment bank Natixis recently said it expected gold to average $885 this year.

Source: WSJ