* Heavy fund buying drives gold to 3rd straight record
* Silver flat, pauses at 2-1/2 year highs
* Investors eye Sept 21 Fed meeting for direction
(Recasts, updates prices, market activity; new byline,
dateline, previously LONDON)
By Frank Tang
NEW YORK, Sept 20 (Reuters) - Gold rose slightly on Monday,
hitting record highs for a third consecutive day as funds kept
buying the metal on a weaker dollar and a report showing U.S.
homebuilder sentiment stayed in the doldrums.
Traders said the market was focused on the Federal
Reserve's policy meeting this week. Economists do not expect
the Fed to announce any new measures to stimulate the economy
on Tuesday when the policy meeting concludes.
But economists also believe the central bank may opt to
make major repurchases of U.S. government debt later this year
if the economic recovery falters. Any such moves could fuel
inflation fears and boost gold prices further.
That possibility kept many traders bullish about gold which
remained sharply below its inflation-adjusted all-time high
above $2,200 an ounce. (Graphic:
http://link.reuters.com/gup24p)
"Everyone's on the surfboard riding the wave. It's
definitely the funds. We would never be seeing a run-up like
this if it were not the big money behind it," said Miguel
Perez-Santalla, vice president of sales at New York-based
Heraeus Precious Metals Management.
Spot gold <XAU=> hit a record $1,283.70 an ounce. It rose
to $1,277.75 an ounce at 12:35 p.m. (1635 GMT), against
$1,275.95 late in New York on Friday. U.S. gold futures for
December delivery <GCZ0> climbed to $2.50 to $1,280 an ounce.
In recent years, many prominent hedge fund managers led by
George Soros and John Paulson turned to bullion, fueling its 17
percent rally year to date, sharply higher than the S&P 500
stock index, which is up less than 2 percent so far this year.
But last week, Soros renewed a warning that gold is the
"ultimate bubble" and "it's certainly not safe and won't last
forever."
The dollar slipped, with some in the currency market
cautious about the upcoming Fed meeting. [] A weaker dollar
often boosts gold, although that correlation has been shaky
this year.
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The home builders' sentiment report on Monday was the
latest indication that confidence in the U.S. recovery remained
fragile. [] U.S. consumer sentiment data on Friday
showed Americans this month at their most pessimistic in over a
year amid growing fears about job security and finances.
This has added to conjecture that the Fed may be
considering further measures to stimulate economic growth.
"The pressure on the U.S. central bank is gradually
building and such a move would be supportive for gold as
monetary base expands further and the dollar weakens," said
Andrey Kruychenkov, an analyst with VTB Capital, in a note.
But few Fed watchers expect the central bank to launch a
new round of bond buying this week. Some policy makers have
expressed relutance to vote for more easing, worried that it
could sow the seeds of inflation. []
ETF INFLOWS SHOWS INVESTOR INTEREST
Reflecting keen investor interest in bullion, the world's
largest gold exchange-traded fund, the SPDR Gold Trust <GLD>,
said its holdings rose another 6 tonnes on Friday. []
Holdings of the world's largest silver-backed ETF, the
iShares Silver Trust <SLV>, also rose on Friday, by 38.05
tonnes to 9,381.74 tonnes. []
Silver prices, which have risen by 17 percent in the last
five weeks alone, were flat on Monday, less than 1.5 percent
below their highest level in nearly 30 years.
"Silver appears to be doing better than gold at the minute
on the back of a combination of not just investment demand, but
also industrial demand as the cycle improves for all the
electronics companies," said Natixis strategist Nic Brown.
Spot silver <XAG=> was trading at $20.74 an ounce against
$20.76 late on Friday. During Monday's session, silver rose as
high as $20.96 an ounce, after reaching $20.99 on Friday, its
highest in the past 2-1/2 years.
The platinum group metals rose in line with gold. Platinum
<XPT=> hit its highest in four months at $1,631.50 an ounce,
and climbed 1.1 percent to $1,628 an ounce against $1,610.55 on
Friday. Palladium <XPD=> inched down to $537.50 against
$539.88.
Prices at 12:45 p.m. EDT (1645 GMT)
LAST NET PCT YTD
CHG CHG CHG
US gold <GCZ0> 1280.50 3.00 0.2% 16.8%
US silver <SIZ0> 20.770 -0.046 -0.2% 23.3%
US platinum <PLV0> 1630.80 8.90 0.6% 10.9%
US palladium <PAZ0> 540.00 -5.70 -1.0% 32.1%
Gold <XAU=> 1278.95 2.60 0.2% 16.6%
Silver <XAG=> 20.75 -0.01 0.0% 23.2%
Platinum <XPT=> 1628.00 17.45 1.1% 11.1%
Palladium <XPD=> 537.50 -2.38 -0.4% 32.6%
Gold Fix <XAUFIX=> 1279.25 -1.00 -0.1% 15.9%
Silver Fix <XAGFIX=> 20.91 6.00 0.3% 23.1%
Platinum Fix <XPTFIX=> 1616.00 7.00 0.4% 10.2%
Palladium Fix <XPDFIX=> 536.00 7.00 1.3% 33.3%
(Additional reporting by Amanda Cooper and Jan Harvey in
London)
(Reporting by Frank Tang)
