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Gold edges towards $1,300

Gold prices closed higher for a third day Wednesday, reaching yet another nominal record high, and edging closer to $1,300 US an ounce.

Latest gains follow Fed's deflation warning

Gold prices closed higher for a third day Wednesday, reaching yet another nominal record high, and edging closer to $1,300 US an ounce.

Gold for immediate delivery rose as much as 0.7 per cent to $1,296.50 before falling back.

S&P/TSX Global Gold Index 3-month chart

The widely traded December contract closed at $1,292.10, up $17.80, on the New York Mercantile Exchange.

The gain followed the monetary policy statement from the U.S. Federal Reserve on Tuesday that warned of falling inflation.

The bank's Federal Open Market Committee said it stood ready to provide more stimulus if the economic outlook deteriorated, raising concerns about possible deflation.

Deflation is a destabilizing drop in wages, prices of goods and services, and the value of stocks, homes and other assets. At its worst, during the Great Depression, it led to bank failures, high unemployment and political unrest.

The central bank has a $2.3-trillion balance sheet it can use to buy American government debt, a move that would push bond market interest rates down.

The aim would be to encourage businesses to borrow to grow and for consumers to borrow to buy.

Gold still well below inflation-adjusted high

Gold is still far below its inflation-adjusted historic high, reached in January 1980, of $873 an ounce. To match the buying power of the metal back then, it would have to rise above $2,435 now.

The Toronto Stock Exchange, heavily weighted in the shares of gold mining companies, lost less ground than U.S. markets.

The S&P/TSX Composite Index closed down 23.3 points, or 0.2 per cent, to 12,147.3. The S&P/TSX Global Gold Index rose one per cent.

On Wall Street, the Dow Jones industrial average lost 21.72 points, or 0.2 per cent, to 10,739.31.

The Nasdaq composite index was down 14.8 points, or 0.6 per cent, at 2,334.55, while the S&P 500 slipped 5.5 points, or 0.5 per cent, to 1,134.28.

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