Gold struck fresh record highs and global stocks rallied on Friday as the dollar waned on mounting expectations that the Federal Reserve will pump more money into the flagging US economy.
“Gold is making a new high and stocks are rallying because the markets think the Fed will print more money before the end of this year just to ensure that the US economy remains on an even keel,” said analyst Neil MacKinnon at VTB Capital.
“The risk for investors is that the US economy does actually fall into a ‘double-dip’ (recession) and not the ‘soft landing scenario’ which the markets are currently discounting,” he said.
Gold struck an all-time high close to 1,283 dollars an ounce on Friday after chalking up a series of records this week. Gold hit 1,282.97 dollars on the London Bullion Market before easing slightly to stand at 1,280.95.
“Traditionally we see investors flocking to gold in times of market troubles, but this relationship is out the window this week as inflation concerns, expectations for further quantitative easing from the Federal Reserve and technical triggers have driven” up the metal, said analysts at the trading group Spead Co.
Meanwhile in foreign exchange trade, the dollar fell at the end of a week during which Japan’s government made a rare intervention in markets to cool the yen’s rise against the US currency that was hurting the country’s exporters.
“At the end of a momentous week for currency markets it’s worth taking stock of how things stand,” said Credit Agricole analyst Mitul Kotecha.
“Much uncertainty remains about the global growth outlook, especially with regard to the US economy, potential for a double-dip and further Fed quantitative easing.”
In London, the dollar fell to 85.81 yen from 85.90 late in New York on Thursday. The dollar had struck a 15-year low of 82.86 yen earlier in the week ahead of Tokyo’s intervention.
Elsewhere, the euro climbed to 1.3141 dollars from 1.3078 in New York. The British pound rose against the European single currency and US unit, a day after sliding in the wake of an unexpected drop in British retail sales.
Stock markets meanwhile rallied on Friday, with London’s benchmark FTSE 100 index rising 1.0 percent to top 5,600 points for the first time in almost five months.
Frankfurt gained 0.92 percent, Paris won 1.29 percent and Madrid was up 1.0 percent in midday trade.
Japanese shares closed up 1.23 percent on Friday, lifted by gains for exporters. On Wall Street, the Dow index ended with slight gains on Thursday as official data showed US jobless claims had dropped last week.
Claims for the week to September 11 fell to 450,000, down 3,000 from the previous week’s revised figure and better than most economists’ expectations of 460,000 new claims.
But Andrew Gledhill, analyst at Moody’s Economy.com, said “the labor market recovery has a long way to go”.
He added: “Claims at this level suggests that businesses are still anxious and cutting payrolls at a pace faster than what is typical in expansion.”