Gold prices soared to record highs for a third straight day Thursday while the U.S. dollar sold off, reaching a 14-month low against a basket of currencies.

The December bullion contract ended trading at $1,055.40 US an ounce, up $12.10, on the New York Mercantile after reaching a record high of $1,059.60 earlier in the day.

Some predict this single wafer of gold may eventually hit $2,000 US. (CBC)

The Canadian dollar closed up .91, to 95.04 cents US.

The U.S. dollar sell-off is a reflection of waning global confidence in the American economy, Jack Mintz, the chairman of the University of Calgary's school of public policy studies, told CBC News.

"The huge pileup of deficits and government debt which is forecast for the future is going to be a significant drag on the economy for many years to come," Mintz said.

"People see that, unless there's a major change in the United States, that growth prospects are not going to be the brightest in the U.S., and therefore people are saying should we hold U.S. dollars or should we start trying to shift slowly over to other currencies, which has been happening."

Mintz expects the U.S. devaluation has the potential to continue "over some time" as its recovery "moves at a snail's pace." Investors worldwide are wondering whether Congress has the political will to deal with a difficult fiscal situation by cutting spending and raising taxes, or by changing course and increasing the money supply, with the resulting problem of inflation.

Mintz said Canada would be hit by a slow U.S. recovery, not just because exports to Americans are a quarter of the economy but also because Canadian businesses compete with U.S. firms in other markets. As a result, he said, Canadian business will have to cut labour costs, do more outsourcing of production, or import more supplies from low-cost countries.

S&P/TSX gold sub-index, 3-month chart

The U.S. dollar decline has accelerated amid signs that emerging economies in Southeast Asia are recovering faster.

One sign came Thursday when — a large exporter to India and China — unexpectedly reported that 40,600 jobs were created there in September. Many economists had expected a decline, some by as much as 10,000.

The central banks of several emerging Asian economies have been buying U.S. dollars for the last few months to stem how fast their currencies rise.

David Watt, senior currency strategist with RBC Capital Markets in Toronto, said intervention accelerated Thursday out of concern the competitiveness of those economies would be hurt.

'A lot of them are rather nervous that things could get disorderly rather quickly.'— David Watt, senior currency strategist, RBC Capital Markets

"It's becoming a bit more imperative now because if the U.S. dollar actually breaks through some pretty key levels — right where it is now — it could weaken quite sharply," he said, "so a lot of them are rather nervous that things could get disorderly rather quickly."

Watt said it's possible the Canadian dollar could again reach parity with the U.S. dollar but this would be a concern to both the Bank of Canada and the government.

"The domestic side of the Canadian economy isn't quite strong enough to offset another burdensome hit to the export sector that a run to parity would could cause," Watt said.

Predictions of $2,000 an ounce

Gold's rise comes amid predictions it will eventually reach $2,000 US an ounce.

Several commentators, including well-known U.S. investor Jim Rogers, suggested gold would trade at $2,000 US an ounce within the next decade. Rogers, the chairman of Rogers Holdings, believes most commodities prices will rise in the near future.

Vancouver-based Citizens Bank suggested in a note to clients that the $2,000 level was possible "in the near future."

Gold also gains at this time of year because it's the busiest season for jewelry sales in India during the wedding season and with the Diwali holiday.

Rising gold stocks helped push the Toronto Stock Exchange higher. The S&P/TSX composite index closed up 134.63 points, or 1.2 per cent, to 11,484.5.

Oil rose as the US dollar fell, closing up $2.12, to $71.69 US a barrel.