Jan. 11 (Bloomberg) -- Gold futures rose to a record $900.10 an ounce on speculation the Federal Reserve will cut U.S. interest rates further, weakening the dollar and boosting the investment appeal of the precious metal. Silver also gained.
HSBC Securities USA Inc. and Morgan Stanley predicted the central bank will reduce its benchmark rate by half a percentage point this month to 3.75 percent after Fed Chairman Ben S. Bernanke suggested cuts may be necessary to guard against an economic slowdown. Gold rose 31 percent last year when the Fed slashed rates 1 percentage point, sending the dollar 9.5 percent lower against the euro.
``If the Fed drops rates, a lower dollar will propel gold higher,'' said Leonard Kaplan, president of Prospector Asset Management in Chicago. ``Everything we buy is going to be more expensive. Any raw material will go through the roof. The smart people see inflation.''
Gold futures for February delivery rose $4.10, or 0.5 percent, to $897.70 an ounce on the Comex division of the New York Mercantile Exchange. The price reached the record at 10:40 a.m. That level was confirmed by Nymex.
Silver futures for March delivery rose 9.5 cents, or 0.6 percent, to $16.37 an ounce. The price earlier reached $16.415, the highest since January 1981. The metal gained 15 percent last year.
A housing slump and writedowns tied to subprime mortgages prompted the Fed to lower interest rates for the first time in four years on Sept. 18.
`Flight to Safety'
Interest-rate futures show a 62 percent chance the Fed will lower borrowing costs to 3.75 percent when policy makers meet on January 30. Earlier, futures showed a 100 percent chance of a cut.
``The almost definite 50-basis-point cut in January from the Fed and further cuts subsequently are potentially inflationary,'' said William O'Neill, a partner at commodity research firm Logic Advisors in Upper Saddle River, New Jersey. ``A recession might hurt overall commodity demand but should not halt the gold rally. Flight to safety remains a key.'' '
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