* Dollar decline drives gold higher after Fed minutes
* Gold benefits on expected further currency depreciation
* ETF flows into palladium spur 2 pct price gain
* Coming up: Bernanke Q&A at Pittsburgh conf. due 2010 GMT
(Recasts, updates comments, market activity, adds second
byline/dateline)
By Frank Tang and Amanda Cooper
NEW YORK/LONDON, Oct 13 (Reuters) - Gold surged nearly 2
percent to a record high near $1,375 an ounce on Wednesday,
boosted by worries over dollar depreciation after the Federal
Reserve signaled it will start buying government debt again to
stimulate the economy.
Gold prices have rallied 25 percent so far this year as
investors sought safe havens while the Fed and other central
banks profess readiness to inject more money into the financial
system.
Silver hit a 30-year peak to approach $24 an ounce, and the
Reuters/Jefferies CRB index -- a barometer for commodities --
rose above 300 points for the first time in two years, as the
dollar fell broadly on reinforced expectations of more U.S.
easing.
Axel Merk, portfolio manager of the Merk Hard Currency Fund
<MERKX.O>, said that the Fed and other central banks are trying
to weaken their currencies to boost economic growth, prompting
investors to turn to gold as an alternative currency.
"With the weaker dollar, inflation will pick up in the
commodity space, which is the most sensitive to monetary
stimulus. So, it's only logical that gold will do very well in
that environment," said Merk, who manages $500 million in
mutual fund assets.
Spot gold <XAU=> hit an all-time high of $1,374.15 an ounce
and was up 1.6 percent at $1,371.05 an ounce at 12:25 p.m. EDT
(1625 GMT). U.S. December gold futures rose $25.80 to
$1,372.50.
Silver <XAG=> hit $23.94, its strongest level since 1980,
and was last up 2.8 percent at $23.93 an ounce.
The dollar remained a main short-term driver of gold, with
the currency coming under selling pressure as market
expectations grew that further Fed easing was imminent. []
"Because we are in a world of quantitative easing in the
developed economies, and as QE is almost synonymous with
competitive devaluation ... gold and the precious metals (are)
taking on the function of an alternative currency," said Ashok
Shah, chief investment officer at London and Capital.
"As we go into the next 1-4 quarters, the role of precious
metals as alternative currency will become much more
paramount," he said. "The role of gold as an inflation hedge is
not important now, but it may become important in the next
cycle when the time to reverse quantitative easing comes."
The correlation between gold and the U.S. dollar was near a
negative 0.6, its most pronounced in six months on a 25-day
rolling basis, Reuters data showed.
ASIAN DEMAND UP
Asian dealers said physical demand remains strong, and
scrap selling is scarce, as market players bet on a further
rally in prices.
Edel Tully, precious metals strategist at UBS, said the
bank's physical sales to India were above the year-to-date
average ahead of Diwali, a key period for Indian gold buying.
Meanwhile, spot palladium <XPD=> rose as much as 2.5
percent to a one-week high of $594.50 an ounce, aided by the
weaker dollar and evidence that investors are continuing to buy
into one of the top performing commodities of 2010.
Outstanding shares in ETF Securities' U.S.-listed palladium
exchange-traded fund, the world's largest palladium ETF, staged
their largest one-day rise in six months on Tuesday, indicating
strong inflows of the metal.
With palladium up 45 percent so far this year and close to
its highest in over nine years, the platinum-palladium ratio,
or the number of ounces of palladium used to buy an ounce of
platinum, fell to 2.87, its lowest in more than six years.
(Graphic: http://link.reuters.com/jet38p )
Palladium <XPD=> was up 1.4 percent to $587.93 an ounce,
and platinum <XPT=> gained 1.3 percent to $1,696.50 an ounce.
Prices at 12:37 p.m. EDT (1637 GMT)
LAST NET PCT YTD
CHG CHG CHG
US gold <GCZ0> 1372.60 25.90 1.9% 25.2%
US silver <SIZ0> 23.955 0.808 3.5% 42.2%
US platinum <PLF1> 1704.00 20.70 1.2% 15.8%
US palladium <PAZ0> 591.90 11.25 1.9% 44.8%
Gold <XAU=> 1371.60 22.00 1.6% 25.1%
Silver <XAG=> 23.94 0.66 2.8% 42.2%
Platinum <XPT=> 1696.50 21.50 1.3% 15.8%
Palladium <XPD=> 587.93 7.93 1.4% 45.0%
Gold Fix <XAUFIX=> 1365.50 7.00 0.5% 23.7%
Silver Fix <XAGFIX=> 23.53 50.00 2.2% 38.5%
Platinum Fix <XPTFIX=> 1696.00 2.00 0.1% 15.7%
Palladium Fix <XPDFIX=> 587.00 6.00 1.0% 46.0%
(Additional reporting by Jan Harvey in London; editing by Jim
Marshall)
