SAN FRANCISCO (MarketWatch) — Gold futures soared to new record Wednesday, fueled by fears of deflation after the Federal Reserve signaled it may inject more cash into the financial system to support the U.S. recovery.

Silver hit a 30-year high as precious and base metals were further aided by a weaker dollar. Copper hit a five-month high, while platinum reached its best in four months.

The U.S. currency came under heavy selling pressure in the wake of the Fed’s latest policy announcement on Tuesday. See more on the euro’s latest gains against the U.S. dollar.

Gold for December delivery GCZ10 added $17.80, or 1.4%, to settle at $1,292.10 an ounce on the Comex division of the New York Mercantile Exchange.

Gold gains boost mining stocks

The contract earlier hit an intraday high of $1,298 an ounce.



Silver for December delivery SIZ10 advanced 42 cents, or 2%, to $21.06 an ounce. Silver hit a nominal record high of $50.35 an ounce on Jan. 18, 1980.

“A new day, a new record high — that essentially describes the situation on the gold market at the moment,” Commerzbank wrote in a note to clients.

Gold’s proximity to the key $1,300 level — a high mark most mainstream analysts expected to see only later this year — gave way to estimates pegging gold at $1,500 an ounce or even $2,000 an ounce in short order, bringing to mind gold’s 1980 record in real terms.

Gold hit an intraday high of $875 an ounce in January, 1980, the crest of rally fueled by geopolitical fears around the Iran hostage crisis. In today’s dollars, adjusted for changes in the U.S. consumer prices, that would mean $2,318.24 an ounce.

After the 1980 peak, however, gold prices rapidly lost steam, trading below $300 in 1982. It rose to the $800s after trading around $250 in 1979, or an increase of roughly 250% in a year.

Gold has been moving steadily up since late July, when the most-active contract hit a nadir of $1,158 an ounce on July 27. On year, gold has gained 27%.

“I don’t see much that can turn it bearish right now,” said Scott Meyers, a senior trading analyst with MF Global’s Pioneer Futures. “It is an orderly move up.”

During the regular trading session Tuesday, December gold finished lower, marking their first down day in four. Gold on Monday also set a record, settling at $1,280.80 an ounce.

Fed worried, but defers action

After Tuesday’s regular trading, the Fed signaled it would be willing to take additional steps to boost the faltering recovery and, if need be, fend off deflation.

The central bank’s words have largely been interpreted to mean that it will likely take further quantitative-easing measures late this year.

That was the catalyst needed for gold, which turned positive in electronic trading Tuesday.

In e-mailed comments, RBC Capital Markets precious metals strategist George Gero characterized it as “all-night fund buying in a rush to catch up positions.”

The dollar index DXY, -0.29% , which tracks the performance of the greenback against a basket of other major currencies, fell 0.8% to 79.83. The euro EURUSD, +0.34% surged 0.9% to $1.34.

A weaker dollar is generally supportive of gold and other commodities as it makes them less expensive for holders of other currencies, broadening their investment appeal.

Also Wednesday, BNP Paribas raised its estimates for gold prices, citing the higher probability of quantitative easing in the U.S. and the weaker-than-expected dollar. The bank now expects gold prices to average $1,200 an ounce in 2010 and $1,290 an ounce in 2011.

“The increase in the price should continue to be driven by safe-haven demand, motivated by sovereign risk and economic uncertainty,” BNP’s Anne-Laure Tremblay said in a research report.

“The increasing prospect for quantitative easing is supportive of gold prices on two fronts: ample liquidity tends to be supportive of asset prices and the move is raising fears of high inflation in the longer term," Tremblay wrote.

Copper for December delivery gained HGZ10 8 cents, or 2.4%, to $3.57 a pound. That’s copper’s best settlement since mid April.

Platinum for October delivery PLV10 advanced $20.50, or 1.3%, to $1,632.90 an ounce -- platinum’s highest close since mid May.