Gold futures rose to a new multiyear high in New York trading Monday as the dollar slid to a record low against the euro, boosting the metal's appeal as a store of value.
Gold prices jumped a total of 49% in 2002 and 2003, the biggest two-year rally since 1979 and 1980, fueled in part by the dollar's drop against the euro.
The dollar fell further Monday after Federal Reserve Gov. Ben Bernanke dismissed the risk of a currency crisis as "quite low," which traders said might mean further declines as the U.S. keeps interest rates low.
The euro ended at $1.267 in New York, compared with $1.259 Friday. The dollar also slid to a three-year low against the yen, at 106.08 compared with 106.98 Friday.
The Fed "is clearly happy to have the dollar go down," which will be positive for gold, said Prescott Crocker, who oversees $5.5 billion at Evergreen Investments Management Co. in Boston. A weaker dollar makes U.S. exports cheaper abroad, though it also slashes Americans' purchasing power.
Gold for January delivery rose $8.70, or 2.1%, to $424.40 an ounce on the Comex division of the New York Mercantile Exchange. Gold has been trading at its highest levels since the 1990s. There was no trading Thursday and Friday for the New Year's holiday.
Silver futures also soared Monday. The near-term contract gained 28 cents to $6.23 an ounce in New York.
"Looking at movements of the dollar against a single currency can be misleading about overall trends," Bernanke said in a speech to the American Economic Assn. in San Diego, referring to the U.S. currency's slide against the euro.
The comment added to speculation that the U.S. central bank will keep the interest rate on overnight loans between banks at a four-decade low of 1%, half that of the European Central Bank, well into this year.
The Federal Reserve governors "seem to be traffic cops with a continual green light" for further declines in the dollar, said Ronald Goodis, director of retail trading at Equidex Brokerage Group Inc. in Closter, N.J. "Anything that's negative for the dollar will be positive for gold."
Gold and other commodities such as copper have risen during the last year partly on expectations that low U.S. interest rates will help revive the economy, pushing up prices of goods and services and boosting the overall pace of inflation.
Some investors buy gold as a hedge in times of inflation, which erodes the value of fixed-income assets such as bonds. Gold futures surged to a record $873 an ounce in 1980, when U.S. consumer prices rose 13%.