PRECIOUS-Gold strikes 7-mth high as funds buy, ETF at record

TOKYO Tue Feb 17, 2009 2:13am EST

TOKYO Feb 17 (Reuters) - Gold rallied to its strongest in 7 months on Tuesday as buying by investors accelerated after prices surpassed last week's highs and the spectre of global economic instability lingered.

New York gold futures also hit their highest level since July, with the most active April contract GCJ9 rising as high as $961.1 an ounce, up $18.9, or 2 percent from Friday's New York settlement of $942.2 in after-hours trading.

"Chart-based buying and persistent demand for investment purposes have been the fundamental triggers for such accelerated gains when almost all other asset classes are heading further south," said Pradeep Unni, an analyst at Dubai-based Richcomm Global Services.

"If the economic crisis sustains, fund flow into the yellow metal may support the prices from any deep slide," he said.

Spot gold XAU= was trading at $957.20 per ounce, up $16.30 from late Monday's levels. It had hit a 7-month high of $958.80, surpassing last week's highs around $951, and was moving closer towards a record high of $1,030.80 struck last March.

U.S. markets were closed on Monday for the Presidents' Day holiday.

In Australia, gold also hit a record high $1,493.61 an ounce XAUAUD=R.

"Prices are rising in a thin market with little physical demand, and pushed higher by those drawing technical charts to see how far the market can go," said a trader at a Japanese firm.

"Speculation about hedge funds facing redemptions is positive for gold. But there is also the risk that if momentum fades, prices could fall as much as they have risen."

Traders have pointed to the record high holdings at the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust (GLD), as evidence of the strong investor interest in the precious metal.

Latest figures show holdings unchanged after hitting a record 985.86 tonnes as of Feb. 13, up 15.29 tonnes or 1.6 percent from the previous day. [GOL/SPDR]

The trust's gold holdings are up more than 205 tonnes, or 26 percent, so far this year.

More gloomy economic news from Japan on Tuesday burnished gold's allure as an investment.

Confidence among Japanese manufacturers remains mired near record lows and service-sector sentiment sank to an all-time low, a Reuters poll showed, as the economy slid deeper into recession against a backdrop of global economic strife. [ID:nT95978]

The dollar rose to its highest in more than a month against the yen, and while a stronger dollar typically weighs on gold, the relationship has decoupled recently as both benefited from safe-haven type buying.

Oil prices hung below $37 CLc1 a barrel as bleak economic indicators in Asia returned focus to slumping demand. [O/R]

Gold has traditionally gotten a boost from strong oil prices as some investors look to the metal as an inflation hedge.

Russia's central bank has increased gold's share in reserves, and plans to continue this trend in 2009, first deputy chairman told Reuters in an interview on Monday. [ID:nMOS005389]

PRICES

Precious metals prices at 0547 GMT Metal Last Change Pct chg YTD pct chg Turnover Spot Gold 957.20 16.30 +1.73 8.75 Spot Silver 13.86 0.29 +2.14 22.44 Spot Platinum 1070.00 7.00 +0.66 14.81 Spot Palladium 215.00 1.50 +0.70 16.53 TOCOM Gold 2853.00 74.00 +2.66 10.88 59808 TOCOM Platinum 3184.00 79.00 +2.54 20.06 9971 TOCOM Silver 408.10 11.50 +2.90 27.81 365 TOCOM Palladium 654.00 22.00 +3.48 18.91 310 Euro/Dollar 1.2648 Dollar/Yen 92.43 TOCOM prices in yen per gram, except TOCOM silver which is priced in yen per 10 grams. Spot prices in $ per ounce. (Additional reporting by Miho Yoshikawa and Lewa Pardomuan; Editing by Clarence Fernandez)

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