Source: http://www.miningweekly.com              Date: 24 September, 2010

Gold rose for a third day on Wednesday to hit record highs above USD1,290/oz after the Federal Reserve's signal that it was prepared to pump fresh cash into the economy hurt the dollar and whet investor appetite for bullion.

Should the Fed resort to a second round of quantitative easing, which involves large-scale purchases of Treasuries to keep interest rates low in exchange for a cash injection into the system, gold's appeal to investors grows as the opportunity cost of holding a non-yield bearing asset declines. Also, fresh cash in the economy raises the risk of a pick-up in inflation, which erodes the returns from currency, equity and bonds holdings, yet benefits owners of gold, who see the value of their holdings rise in line with consumer prices.

Gold has risen by over 17% this year, as investors have sought a relatively safe asset in which to park their cash as major currencies, stocks and bonds have become increasingly volatile.