By Matt Whittaker Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Deadlocked U.S. budget negotiations, continued euro zone debt jitters and concern global inflation could get out of hand pushed gold futures closer to $1,500 and sent silver above $40 for the first time since 1980.

The most-actively traded gold contract, for June delivery, was recently up $11, or 0.8%, at $1,470.30 a troy ounce after hitting an intraday record $1,474.50 on the Comex division of the New York Mercantile Exchange.

"The heightened level of geopolitical and macroeconomic risk...is leading to continued safe-haven demand," a note from Dublin bullion dealer GoldCore said.

Investors often buy gold and silver as refuges against economic and political uncertainty and as hedges against inflation, and this type of demand has spurred a string of rallies in recent days. Comex May silver was recently up 68.8 cents, or 1.7%, at $40.240 a troy ounce after hitting an intraday peak of $40.355, the highest price for a most-active contract since Jan. 22, 1980.

The metals were helped Friday as the dollar was under pressure as the possibility of a U.S. government shutdown loomed, with negotiations between quarreling parties so far not yielding encouraging results. President Barack Obama said Thursday that differences had been narrowed in the talks, but he was unprepared to express "wild optimism" that a deal will be finalized just yet. The deadline for the deal is midnight EDT Friday.

A weaker buck tends to boost dollar-denominated gold and silver by making them less expensive for buyers using other currenties, helping demand.

In addition to fretting about the divisions within the U.S. government over how to manage the country's fiscal situation, investors were also buying the precious metals as worries continued to mount about about sovereign-debt woes in the euro zone periphery. These fears have have boosted precious metals prices as investors want a haven against any potential economic drag.

A key member of the European Central Bank's Executive Board said Spain has not yet been impacted by Portugal's request for aid from the European Union, but the situation in Spain remains "fragile" and depends on the resolve of the government to implement key reforms.

Meantime, concerns about global inflation continued to mount as oil prices remained elevated, with Nymex May crude nearing $112 a barrel amid reports that a Libyan oil field has been damaged.

The ECB and China this week raised interest rates to combat inflation. In the U.S., core inflation has been subdued, but the debate about the Federal Reserve's own easy money policies has come into greater focus as prices for food and energy rise.

"Eventually the higher food and energy will filter into the core number," said MF Global analyst Tom Pawlicki.

Another ECB official said Friday that it is "very important" that the European Central Bank continues to monitor inflation expectations, which have shown signs of increasing recently.

Despite the worries about the potential for problematic producer and consumer price increases, monetary policy around the globe remains relatively loose.

This accommodative policy has been a boon to gold and silver prices because the low interest rates make it more attractive for participants to move money from other investments into the non-interest-bearing metals. The loose money policies, as governments have tried to boost their economies, have also sparked fears of inflation.

A Federal Reserve official said Friday that now is not time to change the course on monetary policy.

"The future permits a degree of patience as regards monetary policy," Federal Reserve Bank of Atlanta President Dennis Lockhart said. Flagging the "halting and fragile quality" of the economy as it recovers, the official said "the process of restoration of full economic strength with higher employment continues to require support."

-By Matt Whittaker, Dow Jones Newswires; 212-416-2139; matt.whittaker@dowjones.com

Source: http://online.wsj.com/article/BT-CO-20110408-707513.html