Gold steadied on Friday, just shy of fresh record highs and set for its seventh successive weekly gain, driven largely by the decline in the dollar to its lowest in nearly three years.
The dollar fell to its lowest since July 2008 against a basket of major currencies, after data this week painted a picture of an economy with slower growth and higher inflation, and after the Federal Reserve signaled it would not tighten monetary policy any time soon.
An environment of low interest rates, a weak dollar and accelerating price pressures is usually positive for gold, which becomes cheaper to non-U.S. investors and can help insulate a portfolio against inflation.
Gold's inverse correlation to the U.S. dollar makes it cheaper for non-U.S. investors and means it draws more strength from weakness in the greenback. Highlighting gold's dependence on the dollar is the tepid performance of the metal versus other major currencies such as the euro, against which it has barely moved this week.
Spot gold was last up 0.1 percent at $1,536.30 an ounce by 1055 GMT, on course for a 1.8 percent gain this week, when it hit a record $1,538.35. Trading volumes were restricted by a public holiday in London.
SILVER HOLDS FIRM
Meanwhile silver hovered close to its highest in over 31 years, having gained nearly 5 percent this week, although analysts say its robust performance against the other precious metals may not be sustainable.
The move in gold has been much slower with silver continuing to outperform, said Saxo Bank manager Ole Hansen.
Against the other major currencies the performance year to date has been pretty flat with euro (priced) gold showing a negative return of 2.5 percent, he added.
Silver was last up 0.9 percent at $48.86 an ounce, profiting also from the softness in the dollar, which fell 0.3 percent against a basket of currencies.
If the dollar continues to weaken, then it's only likely to boost gold as well as silver as the inverse relationship between the two assets persists. I would say that for gold I am still looking for it to hit $1,600 this year, said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.
In the long term, I think, if we see silver prices at such a high level, then it could hurt the industrial demand.
But dealers said strong investment demand for silver would keep the metal at record levels, while a lack of scrap sales in the physical market suggested that investors expected more gains. Year to date, silver was up almost 60 percent, sharply above gold's 8 percent gain.
There's some selling but I would say it's very light, said a dealer in Singapore, who trades gold and silver. It had been a very busy week, and I am glad today is Friday. It's all quiet, finally.
The CME Group Inc, parent of the Chicago Board of Trade, said on Thursday it would raise maintenance margins for COMEX 5000 Silver futures by 13.2 percent, making it more expensive for silver speculators to trade in.
Soaring prices hurt the bottom line of certain manufacturers, including photography company Eastman Kodak, which said on Thursday a hike in raw material costs, particularly silver, led to a decrease in its film business revenue.
In the energy market, crude eased on Friday, after settling at a 31-month high in the previous session, on concerns that slowing growth in top consumer United States may pare demand, but a weaker dollar and unrest in the Middle East helped stem a slide in prices.
Platinum echoed the strength in gold and silver, rising 0.3 percent on the day to $1,841.99 an ounce, while palladium rose 1.8 percent to $784.47. (Additional reporting by Lewa Pardomuan in Singapore; editing by Anthony Barker)