* Gold hits second record in a row as dollar slides
* Ongoing unrest in Mideast, inflation worry add momentum
* Silver hits highest since 1980; options bullish
* Coming up: ECB interest rate decision on Thursday
(Recasts, updates comments, prices, market activity, changes
dateline from previous NEW YORK/LONDON)
By Frank Tang
NEW YORK, April 6 (Reuters) - Gold rose to an all-time high
for a second straight day on Wednesday as the U.S. dollar fell
to a 14-month low against the euro ahead of an expected
interest rate hike from the European Central Bank (ECB).
Silver surged to a 31-year peak for a third consecutive day
as holdings of the world's largest silver exchange-traded fund
hit a record. Precious metals also drew support from renewed
sovereign debt fears amid Portugal's financial crisis and
inflation worries as crude oil and corn gently pulled back from
new peaks.
On the silver options front, investors used bullish
strategies such as call spreads buying and put selling, even as
implied volatility stayed largely flat, a sign that the metal
is building momentum for another upward move.
"It is unquestionable that the demand for precious metals
derives from the devaluation of the leading currencies -- the
dollar, the pound and the euro," said Angelos Damaskos, a fund
manager at Sector Investment Managers.
Spot gold <XAU=> hit a record $1,461.91 an ounce before
easing to $1,458.90 an ounce, up 0.6 percent, by 2:40 p.m. EDT
(1840 GMT). U.S. gold futures for June delivery <GCM1> settled
up 0.4 percent to $1,458.50.
The traditional inverse correlation between gold and the
dollar appeared to be strengthening this week to a negative
0.8, as gold rose to successive records, but the link between
the two could be erratic in the near term. A correlation of
minus 1 indicates a perfect inverse link, and vice versa.
Gold remained far below its all-time inflation-adjusted
high, estimated at almost $2,500 an ounce set in 1980 as a
result of heightened geopolitical pressure and hyperinflation.
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Gold was boosted as the euro climbed against the dollar to
its highest in more than a year. The ECB was widely expected to
raise its benchmark rate 25 basis points on Thursday, its first
hike since the global economic crisis three years ago.
Higher interest rates usually weigh on gold, but the metal
could gain if rate differentials weaken the U.S. dollar.
SILVER SOARS NEAR $40, GOLD RATIO FALLS
Strong investment demand drove silver up more than 1
percent to a high of $39.75 -- its best since January 1980,
when the Hunt Brothers corned the market. Silver <XAG=> eased
off the session high to trade at $39.52 an ounce, up 0.7
percent.
"Either way, you are going to see a significant move from
here. Even though we were up this much, I think you are going
to see an even bigger move," said Dominick Cognata, a COMEX
gold and silver options floor trader.
Holdings of silver in the iShares Silver Trust <SLV> ETF
are at a record 11,162.45 tonnes, up more than 240 tonnes so
far this year.
The gold-silver ratio, which shows how many silver ounces
are needed to buy an ounce of gold, fell to a 28-year low at
below 37. Silver outperformed gold in the first quarter, rising
22 percent, while gold rose 0.7 percent.
"Silver has outperformed gold, but the real leader of this
rally is gold. Uncertainty in the Middle East, the euro zone
sovereign debt crisis and inflation are all reasons why gold is
higher," said Bill O'Neill, partner of commodities firm LOGIC
Advisors.
Reflecting the pick-up in investor demand for gold was the
first inflow of the metal into the SPDR Gold Trust since March
16. <GLD> For details, see [] and []
Investors remained focused on Thursday's policy meetings by
the ECB and by two other major central banks. The Bank of Japan
and the Bank of England are expected to hold rates steady.
In the United States, some Federal Reserve officials
believe they would have to maintain easy monetary policy beyond
this year, while a few said the central bank should move to
tighter conditions before year-end. []
Dennis Lockhart, the president of the Atlanta Fed, said on
Wednesday the U.S. economy remained too fragile for the Fed to
begin raising interest rates. []
Gold has been a major beneficiary since the Fed has kept
short-term rates near zero since December 2008.
For platinum group metals, spot platinum <XPT=> rose 0.1
percent to $1,787.99 an ounce, while palladium <XPD=> slipped
0.5 percent to $782.22.
Prices at 2:40 p.m. EDT (1840 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCM1> 1458.50 6.00 0.4% 2.6%
US silver <SIK1> 39.387 0.204 0.0% 27.3%
US platinum <PLN1> 1797.80 1.00 0.1% 1.1%
US palladium <PAM1> 784.60 -8.50 -1.1% -2.3%
Gold <XAU=> 1458.90 8.30 0.6% 2.8%
Silver <XAG=> 39.52 0.29 0.7% 28.1%
Platinum <XPT=> 1787.99 2.24 0.1% 1.2%
Palladium <XPD=> 782.22 -4.16 -0.5% -2.2%
Gold Fix <XAUFIX=> 1461.50 4.50 0.3% 3.6%
Silver Fix <XAGFIX=> 39.63 155.00 4.1% 29.4%
Platinum Fix <XPTFIX=> 1808.00 12.00 0.7% 4.4%
Palladium Fix <XPDFIX=> 793.50 6.50 0.8% 0.3%
(Additional reporting by Jan Harvey in London; editing by
David Gregorio and Jeffrey Benkoe)
