* Heavy fund buying drives gold to 3rd straight record
* Silver flat, pauses at 2-1/2 year highs
* Gold market seeks signs of Fed quantitative-easing
* Coming up: Federal Reserve meeting results due Tuesday
(Recasts, updates prices, market activity to settlement)
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 which concludes on Tuesday.
Most economists do not expect any new economic stimulus
programs from the Fed, But if the economic recovery falters,
the U.S. central bank may opt later this year to make major
repurchases of U.S. government debt, a plan known as
quantitative easing. This could increase gold's appeal.
"There is a possibility that we could get at least some
hints leaning toward quantitative easing, and that's what the
gold market wants to hear," said Bill O'Neill, partner at New
Jersey-based commodities firm LOGIC Advisors.
"Part of the recent rally has been based on the idea that
we could have a second round of quantitative easing. So, if the
Fed meeting turns out to be a complete nonevent, then you may
see short term negative reaction on gold," he said.
The possibility of Fed stimulus 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)
Spot gold <XAU=> hit a record $1,283.70 an ounce, then
pared gains. It stood at $1,277.60 an ounce at 3:16 p.m. (1916
GMT), up from $1,275.95 late in New York on Friday. U.S. gold
futures for December delivery <GCZ0> settled up $3.30 at
$1,280.80 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.
(Graphic: http://r.reuters.com/hun72k )
"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.
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, the inverse relation has
strengthened in the last five days.
The home builders' sentiment report was the latest
indication that confidence in the U.S. recovery remained
fragile. [] U.S. consumer confidence data on
Friday showed Americans this month at their most pessimistic in
over a year.
Some analysts said this has added to conjecture that the
Fed may reconsider new measures to spur 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 reluctance 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. []
Silver prices, which have risen by 17 percent in the last
five weeks alone, were flat, 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 $20.71 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 0.7 percent to $1,622.50 an ounce against $1,610.55
on Friday. Palladium <XPD=> dropped to $534.50 against
$539.88.
Prices at 3:20 p.m. EDT (1920 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCZ0> 1280.80 3.30 0.3% 16.8%
US silver <SIZ0> 20.777 -0.013 0.0% 23.3%
US platinum <PLV0> 1632.00 10.10 0.6% 10.9%
US palladium <PAZ0> 539.50 -3.80 -0.7% 32.0%
Gold <XAU=> 1277.60 1.65 0.1% 16.5%
Silver <XAG=> 20.72 -0.04 -0.2% 23.0%
Platinum <XPT=> 1624.00 13.45 0.8% 10.8%
Palladium <XPD=> 534.50 -5.38 -1.0% 31.8%
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)
