By Mathew Murphy
ECONOMIC woes in the US have helped lift the Australian dollar and gold prices as investors look to safer options to house their money.
News from the US Federal Reserve that it would take steps to stimulate the economy against fears of deflation produced an immediate selloff of the greenback and sent spot gold to a record high of $US1290.70 an ounce.
The Federal Reserve said it was prepared to act if necessary to stop prices falling.
''The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,'' it said.
That led the Australian dollar to surge from US94.70¢ before the statement was released to US95.60¢ a minute afterwards.
Sean Callow, Westpac senior currency strategist, told BusinessDay that comments from Australia's central bank had also helped buoy the local currency.
''Stern words from the Reserve Bank of Australia has forced a lot of people to change their forecasts,'' Mr Callow said.
''Heading into last weekend, there was a 25 per cent chance of an October interest rate hike priced into the market. As of [yesterday morning] it was 60 per cent, with the chances of it happening in either October or November now at 90 per cent.''
In its currency note to clients, Westpac said it was more likely that the Australian dollar would head towards parity with the greenback than drop to US90¢.
Domestic and international factors are also providing support for a stronger gold price, says Tony Parry, senior resource analyst at Resource Capital Research.
Mr Parry said he felt it was only a matter of time before gold broke through the $US1300-an-ounce mark.
''How high gold goes really depends on this doomsday mentality in the market,'' he said.
''That is the key driver and what it is saying is that it is hard to find any asset class at the moment which feels comfortable.
''Hedge funds are all in there pushing gold up and taking positions, so it could easily push through $US1300.
''We don't subscribe to these arguments of $US3000 or $US5000 an ounce for gold. In fact, on fundamentals gold is very overpriced at the moment, and basic supply and demand shows you jewellery demand is weak; there are many factors that don't support strong gold prices. If this safe haven dissipates, then gold will come off.''
Mr Parry said investors should expect more mergers and acquisitions of gold companies. ''We run our long-term models on a $US900 gold price and we are seeing a lot of excellent value based on that price. So if you start factoring in $US1000-plus - and a lot of people would be doing that - then there is excellent value there for gold shares,'' he said.
''The Australian market is particularly ripe now that Lihir has been swallowed up. There is Newcrest and then there is a big gap to Kingsgate, which is a 200,000-odd-ounce producer.
''We are going to see a lot more acquisitions. Gold is not heading back to $US1000 in a hurry. We could have another year or two of that safe-haven play.''