* Gold hits record as dollar drops on oil pricing report
* Dollar weakness, rather than inflation, drives gold
* SPDR gold ETF holdings rise for second successive day
(Recasts, updates closing prices, market activity, adds
comments)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 6 (Reuters) - Gold surged to a record
high above $1,040 per ounce on Tuesday, as investors piled into
the metal to preserve the value of their dollar-denominated
assets against erosion by a weakening dollar and inflation.
Both spot gold prices <XAU=> and U.S. gold futures <GCZ9>
have benefited from a convergence of factors, including
technical buying, a report that some oil producers could switch
to other currencies to price their crude and worries about the
potential inflation impact of unprecedented global fiscal
stimulus.
"In an environment where interest rates are virtually zero,
the incremental cost of moving into gold is nil. It stands to
reason for investors that gold is more desirable," said Jack
Ablin, chief investment officer at Harris private bank in
Chicago.
Spot gold hit a historic $1,043.45 per ounce, and was last
up 1.9 percent at $1,036.10 at 2:36 p.m. EDT (1836 GMT),
against $1,016.65 quoted late in New York on Monday.
Bullion surpassed its previous record $1,030.80 set in
March 2008. Year to date, the metal has gained 18 percent.
However, Tuesday's all-time high was still sharply below
the inflation-adjusted record pinpointed by analysts. Metals
consultancy GFMS put that figure as high as $2,079 an ounce.
For a graphic on inflation-adjusted gold price:
http://graphics.thomsonreuters.com/109/GLD_PRCINF1009.gif
Most-active U.S. gold December futures hit an all-time high
$1,045. December settled at $1,039.70 an ounce, up 2.2 percent
or $21.90.
Bullion also hit six-month highs when priced in sterling
<XAUGBP=R> and euros <XAUEUR=R>, breaking above 700 euros an
ounce for the first time since early April.
For a graphic on gold's price in dollars and euros, click
on:
http://graphics.thomsonreuters.com/109/GLD_PRCEUR1009.gif
The dollar slipped sharply after U.K. newspaper the
Independent said Gulf Arab states were in secret discussions to
end the use of dollars in oil trading. Big oil-producing
countries later denied the report. []
An interest rate hike in Australia also reinforced
expectations the Federal Reserve will lag other central banks
in ending its loose monetary policy. []
Gold's rally was driven primarily by fears over currency
depreciation. A weaker dollar, however, will eventually lead to
import-led inflation down the road, analysts said.
"This is more a concern about the dollar than inflation so
it has become very much more a dollar story. At the end of the
day, everyone concludes all roads seem to lead to a weaker
dollar at the moment," said Chris Turner, head of currency
strategy at ING in London.
A weaker dollar makes gold and dollar-priced assets cheaper
for holders of other currencies. Gold is also used as a hedge
against inflation.
A positive technical picture for gold fueled buying on the
fund side, traders said. However, the weight of near-record
long positions in New York gold futures still leaves the market
vulnerable to a correction, analysts said.
PHYSICAL INVESTMENT DEMAND IN FOCUS
Physical demand for the metal was also rising. The largest
gold exchange-traded fund, New York's SPDR Gold Trust <GLD>,
said its holdings rose for a second consecutive day and were up
1.5 tonnes as of Oct. 5. []
Traders said they were also seeing rising demand in India,
the largest consumer of gold last year, ahead of Diwali, a
major gold-buying festival, on Oct. 19. []
Mark Cutifani, chief executive of AngloGold Ashanti
<ANGJ.J>, the world's third largest and Africa's top gold
producer, said he saw gold prices at $950 to $1,100 an ounce in
the next 12 months, and they could break $1,100 if the U.S.
economy continued to dip and investment demand rises.
[]
The yellow metal's gains helped lift silver <XAG=> to a
two-week high of $17.36 an ounce as investors bought it as a
cheaper proxy for gold. It was last at $17.22 against $16.59.
Palladium <XPD=> hits its highest since August last year at
$308.50. It was last at $306.50 against $298.50.
Platinum <XPT=>, the precious metal widely used in
autocatalyst manufacturing, also benefited from gold's climb.
It was last at $1,315 an ounce against its Monday late quote of
$1,293.
Also see TAKE A LOOK-Gold hits record high on
[]
For graphic on gold's correlation with stocks, the dollar
and oil:
http://graphics.thomsonreuters.com/109/GLD_PRCCRR1009.gif
Close Change Pct 2008 YTD
Chg Close % Chg
US gold <GCZ9> 1039.70 21.9 2.2 884.3 17.6
US silver <SIZ9> 17.295 0.760 4.6 11.295 53.1
US platinum <PLF0> 1325.30 23.50 1.8 941.50 40.8
US palladium <PAZ9> 310.30 7.00 2.3 188.70 64.4
Prices at 2:35 p.m. EDT (1835 GMT)
Gold <XAU=> 1036.30 19.65 1.9 878.20 18.0
Silver <XAG=> 17.16 0.57 3.4 11.30 51.9
Platinum <XPT=> 1315.00 22.00 1.7 924.50 42.2
Palladium <XPD=> 306.00 7.500 2.5 184.50 65.9
Gold Fix <XAUFIX=> 1038.75 18.50 1.8 836.50 24.2
Silver Fix <XAGFIX=> 16.95 72.00 4.4 14.76 14.8
Platinum Fix <XPTFIX=> 1310.00 10.00 0.8 1529 -14.3
Palladium Fix<XPDFIX=> 302.00 2.50 0.8 365.0 -17.3
(Additional reporting by the New York Treasury Desk and
Veronica Brown in London; Editing by Lisa Shumaker)
