Gold hits record on dollar tumble

A goldsmith counts gold bangles at a workshop in Jammu, November 25, 2009.

NEW YORK/LONDON (Reuters) - Gold prices hit record highs above $1,190 an ounce on Wednesday as the dollar fell sharply and the market expected central banks from emerging economies to keep buying bullion from the International Monetary Fund (IMF).

Gold prices have risen nearly 15 percent since the beginning of November, on a combination of central bank interest to diversify into the metal, a steadily falling U.S. dollar and inflation worries.

Late on Wednesday, the IMF said it had sold 10 tons of gold to the Central Bank of Sri Lanka.

"We have had relatively supportive news from the central banks, particularly in Asia, confirming that there is demand for gold as a means of diversifying their large foreign exchange reserves," RBS Global Banking & Markets analyst Daniel Major said.

"There is plenty more potential for central banks to buy either IMF gold or other gold in the market to try and boost their reserves," he added.

Investor sentiment was bullish, highlighted by the news that the U.S. Mint said it was suspending sales of the popular American Eagle one-ounce gold bullion coins due to strong demand.

Spot gold hit a high of $1,190.20 an ounce and was at $1,189.65 an ounce at 3:39 p.m. EST (2039 GMT), against $1,168.90 late in New York on Tuesday.

U.S. December gold settled up $21.20, or 1.8 percent, at $1,187 an ounce on the COMEX division of the New York Mercantile Exchange.

India's Financial Chronicle newspaper said India is open to buying more gold from the International Monetary Fund, which has around another 200 tons to sell. The IMF had no comment on the report.

The market is sensitive to speculation of further official sector buying after news in early November, that India's central bank had bought 200 tons of gold from the IMF, sparked a rally.

Russia, Sri Lanka and Mauritius have also previously announced gold acquisitions, and traders speculate that more central banks, particularly in Asia, could be open to gold acquisitions to diversify their foreign exchange reserves.

CENTRAL BANK DIVERSIFICATION

Expectations for further reserve diversification, as well as prospects for further dollar weakness and fears over inflation in 2010 have all fueled investment demand for the precious metal, and could lead to further sharp prices gains.

Gold received a boost as the dollar fell to a 15-month low against the euro due to views that U.S. rates would stay low and as Russia said it would diversify currency reserves <FRX/>

Dollar weakness helped lift other commodities. Oil prices rallied $2 and industrial metals prices climbed. <O/R> <MET/L>

Silver was at $18.79 an ounce versus $18.49. Holdings of the world's main silver ETF rose 136 tons to a record 9,252 tons on Tuesday, while ETF Securities' silver exchange-traded product also hit record levels.

Platinum was at $1,473.50 an ounce against $1,444.50, while palladium was at $371.30 against $366.35.

(Reporting by Frank Tang; Editing by David Gregorio)