* Dollar index hits 2010 low, prompts safe-haven buying
* SPDR gold ETF reports further decline in holdings
* Silver hits 30-year peak, palladium highest since 2001
(Recasts, updates with comment, market activity, adds second
byline/dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 14 (Reuters) - Gold extended its
record-breaking rally to a second day on Thursday as the dollar
fell to a 2010 low against a basket of major currencies,
prompting investors to buy the metal as a hedge against
currency depreciation.
Silver hit a 30-year peak to rise above $24 an ounce.
The Reuters/Jefferies CRB index <.CRB> -- a barometer for
commodities -- posted further gains a day after rising above
300 points for the first time in two years, driven by a
steadily falling dollar.
"It just doesn't seem to matter too much anymore. Dollar
up, dollar down ... Investors are choosing precious metals as a
safe haven just because they are the only show in town right
now," Michael Daly, gold specialist at Chicago-based futures
broker PFGBest.
Daly also cited strong underlying buying on the uncertain
economic outlook, after data showed new U.S. claims for jobless
benefits rose last week, hardening the view the central bank
will pump more money into the economy. []
Gold prices have risen more than 25 percent this year as
the dollar has been battered by expectations that U.S.
policymakers will pursue an increasingly loose monetary policy
and resume buying government debt to stimulate economic
growth.
Spot gold <XAU=> hit a high of $1,387.10 an ounce and was
up 0.3 percent at $1,375 an ounce at 12:02 p.m. EDT (1602 GMT).
U.S. December gold futures <GCZ0> climbed $5.80 to $1,376.30.
Silver prices <XAG=> also rode higher on gold's coattails,
setting a 30-year high at $24.90 an ounce, and was trading up 2
percent at $24.37.
The U.S. dollar index <.DXY>, which measures the dollar's
performance against a basket of six major currencies, fell to
its lowest level this year. The Australian dollar flirted with
parity as selling in the greenback spread after Singapore
widened its currency trading band. []
The correlation between bullion and the U.S. currency has
increased to a negative 0.54, the strongest inverse
relationship since April.
(Graphic:http://link.reuters.com/gyk58p)
Dollar-denominated gold tends to move in the opposite
direction to the U.S. currency. But that inverse relationship
was broken earlier this year as investors flocked to both gold
and U.S. Treasury debt as safe havens.
Since last August, the dollar index has lost nearly 10
percent. Gold has surged to a series of record highs over the
same period.
Standard Chartered analyst Daniel Smith said dollar
weakness had been a major driver of the recent run higher in
gold.
"In the last day or so, we've seen evidence that we are
going to see more weakness in the dollar in the next week or
two," he said.
Investors are continuing to dump the U.S. currency on
expectations the Federal Reserve will start further
money-printing as soon as its next meeting on Nov. 2-3, and as
tensions rise over the increasing volatility of the foreign
exchange markets.
"Although QE expectations are an important element of the
rally, currency disputes are also a prime driver of gold
prices," said James Steel, chief commodity analyst at HSBC.
GLD ETF SEES OUTFLOW
Swiss bank UBS raised its one-month forecast for gold to
$1,425 an ounce from $1,300, saying it sees limited downside
potential for gold ahead of the Fed's November meeting. It
raised its three-month price view to $1,400 an ounce from
$1,300.
"Gold's climb is not showing any signs of slowing," UBS
said. "$1,400 is now being eyed as a short-term target, which
seems easily achievable as long as the dollar continues to fall
across the board."
Interest in gold-backed exchange-traded funds was showing
signs of exhaustion, with holdings of the world's largest, SPDR
Gold Trust <GLD>, declining further on Wednesday. They have
fallen some 19.5 tonnes since the end of September. []
However, decent physical buying in the key Indian markets
ahead of Hindu festivals such as Diwali, a major gold-buying
event, is keeping the metal well bid, dealers said.
Among other precious metals, palladium rallied to a fresh
nine-year high at $603 an ounce, lifted by strength in gold,
dollar weakness and an improving auto demand.
Palladium <XPD=> was further trading up 1.5 percent at
$599, while platinum <XPT=> gained 0.3 percent at $1,707 an
ounce.
Prices at 12:21 p.m. EDT (1621 GMT)
LAST NET PCT YTD
CHG CHG CHG
US gold <GCZ0> 1374.00 3.50 0.3% 25.3%
US silver <SIZ0> 24.390 0.458 1.9% 44.8%
US platinum <PLF1> 1711.50 4.10 0.2% 16.3%
US palladium <PAZ0> 601.10 7.45 1.3% 47.0%
Gold <XAU=> 1373.10 2.20 0.2% 25.2%
Silver <XAG=> 24.37 0.48 2.0% 44.7%
Platinum <XPT=> 1706.50 4.25 0.2% 16.4%
Palladium <XPD=> 599.50 9.05 1.5% 47.8%
Gold Fix <XAUFIX=> 1373.25 -7.50 -0.5% 24.4%
Silver Fix <XAGFIX=> 24.49 96.00 4.1% 44.1%
Platinum Fix <XPTFIX=> 1708.00 5.00 0.3% 16.5%
Palladium Fix <XPDFIX=> 598.00 3.00 0.5% 48.8%
(Reporting by Frank Tang; editing by Jim Marshall)
