Gold retreats from record high as dollar rebounds

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

LONDON (Reuters) - Gold fell over 1 percent from a record high hit earlier on Thursday as the dollar bounced from its lows, but the metal still eyed new peaks due to prospects for central bank buying and further dollar weakness.

Spot gold hit a record high of $1,194.90, but had retreated to $1,182.40 an ounce by 1628 GMT versus its last quote of $1,190.30 in New York late on Wednesday. It briefly fell below $1,180 an ounce, as low as $1,179.90.

"The overall picture remains quite bullish," said Piri Kutluoglu, MKS trader in Switzerland. "It seems we could be hitting the $1,200 an ounce level pretty soon," he said.

Various central banks expressing their interest in buying gold and persistent dollar weakness were the major drivers that would boost bullion to fresh peaks, Kutluoglu said.

Bullion has risen more than 37 percent this year, including a 13 percent rise in November alone on dollar weakness, expectations of further reserve diversification by central banks and fears of inflation next year.

The International Monetary Fund said on Wednesday it had sold 10 tonnes of gold to the Central Bank of Sri Lanka, a part of the 403.3 tonnes approved for sale by the fund's executive board in September. The fund has already sold 202 tonnes to the central banks of India and Mauritius.

"It appears that central banks are prepared to expand their gold reserves despite the current high gold price level, which in turn increasingly attracts private investors back to the market," Eugen Weinberg, analyst at Commerzbank said in a research note.

Traders said Dubai's move to restructure its biggest corporate debtor, Dubai World, and delay some of the company's $59 billion of liabilities had an indirect impact on gold as it moved the dollar.

The dollar rose further and the euro extended losses as ratings agency Standard&Poor's put the credit ratings of four Dubai banks on negative outlook. Against a basket of currencies, the U.S. currency .DXY was up 0.91 percent.

U.S. December gold futures also rose to a fresh high of $1,195.00 per ounce. Futures were last at $1,182.20 an ounce, compared with $1,187.00 on the COMEX division of the New York Mercantile Exchange.

Gold has soared to new highs five times in the last ten trading sessions, and three times this week.

EVERYBODY BULLISH

Central Banks, particularly in Asia, increasingly looking to diversify their foreign exchange reserves after India's purchase of 200 tonnes earlier this month, are a major factor lifting the yellow metal.

"Everybody is bullish on gold, and everybody is looking at the signal central banks are sending," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.

"It's not just India or China...everybody is looking at how much money they will invest in gold," he said.

Any decision on whether India would buy more gold from the IMF would be taken by the Reserve Bank of India, Indian finance ministry official Anup Pujari, joint secretary for multilateral institutions, told Reuters on Thursday.

For a graphic of reserves held by India and China, click:

here

Poon said there was a lot of physical demand despite high prices, with Asian buyers seen in the market.

For a timeline on gold prices, click: here

"Reserve diversification moves by non-G7 central banks underscore investor detachment from U.S. dollar assets and is clearly reflected in gold's rally," said Shuji Sugata, a manager at Mitsubishi Corp Futures research team.

U.S. markets will be closed on Thursday for the Thanksgiving holiday. Traders said volume was not large, with many players keeping to the sidelines due to the Thanksgiving holiday.

Gold's earlier rally pulled other precious metals higher, with platinum rising as high as $1,480.00 per ounce, its highest since late August, 2008.

Silver was at $18.43 an ounce versus $18.82 an ounce while palladium was at $366 an ounce versus $370 an ounce on Wednesday.

(Additional reporting by Chikako Mogi in Tokyo, Editing by Veronica Brown and Sue Thomas)