Gold hits record above $1,110/oz as dollar slides

By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold hit a record high above $1,110 an ounce on Monday as the dollar tumbled on expectations of low U.S. interest rates, boosting bullion's appeal as a hedge against a falling U.S. currency.

The precious metal extended last week's gains of nearly 5 percent, when fund buying took it to record highs after India's central bank bought 200 tonnes of gold from the International Monetary Fund and the dollar weakened further.

Nicholas Brooks, head of research and investment strategy at ETF Securities, said that gold rallied on expectations of continued monetary easing following a G20 meeting over the weekend.

"Investors have become concerned about the outlook for paper currencies and also for inflation. The natural move in this kind of environment is into gold," Brooks said.

Equities, oil and other commodities also rallied on Monday. The S&P 500 index rose for a sixth straight session as the dollar index fell to a 15-month low after the Group of 20 pledged to keep emergency stimulus spending in place.

Spot gold was at $1,100.85 an ounce at 2:08 p.m. EST (1908 GMT), against $1,096.30 in New York late Friday. Earlier in the session, bullion reached a record high of $1,110.85 an ounce

U.S. December gold settled up $5.70 at $1,101.40 an ounce on the COMEX division of the NYMEX.

Deutsche Bank trader Michael Blumenroth said some inflation fears are starting to be felt, while the weak dollar remains the key driver of the market. "People are expecting more weakness there," he said.

"In general, the rally looks healthy," he added.

For a chart showing correlation of gold prices and inflation expectations, click on: here

Weakness in the U.S. dollar tends to benefit all dollar-priced assets, as it makes them cheaper for holders of other currencies.

Gold mining stocks as a whole rose to their highest level since July 2008. Gold BUGS index .HUI climbed nearly 5 pct, led by gains in shares of gold producers such as Buenaventura (BVN.N) , Agnico-Eagle (AEM.TO) and Goldcorp GG.TO.

In the official gold sector, the Russian central bank's first deputy chairman, Alexei Ulyukayev, said on Monday the central bank may buy gold from the state repository, Gokhran.

GOLD RISES IN ALL CURRENCIES?

Traders noted that gold's strength in currencies other than the U.S. dollar suggested gains could be resilient.