Gold hits record above $880 as fund cash pours in

By Frank Tang and Veronica Brown

NEW YORK/LONDON (Reuters) - Gold surged to a record high above $880 per ounce on Tuesday as funds poured into the market amid a broad commodity rally, confident of further upside in the metal with support from a weaker dollar and firm oil.

Spot gold XAU= sprinted to a record $881.10 an ounce, surpassing the historic high of $869.05 hit last week.

Bullion traded at $878.10/878.90 by New York's last quote at 2:15 p.m. EST, up sharply from $859.70/860.40 quoted late in New York on Monday.

U.S. gold futures finished above $880 after scaling a record high. The most-active gold contract for February delivery GCG8 settled up $18.30 or 2.1 percent at $880.30 an ounce on the COMEX metals division of the New York Mercantile Exchange.

The contract hit a session high of $884.00, surpassing the previous record high of $875 set January 21, 1980 for COMEX futures on a continuous spot-month basis.

"I think gold is starting to come into its own now as a currency, and people have started to realize it," said Neal Greenberg, trader with RBC Proprietary Trading at Red Bank, New Jersey.

Traders and analysts said gold and other commodity prices had found support so far in January from fund reallocation cash, with pension funds and other long-term investors having pumped an estimated $100 billion or more into commodities over the past five years.

"There's significant buying from people re-rating their commodity indices and adding to the amount of gold they have," said Ross Norman, managing director at TheBullionDesk.com.

Gold, along with crude oil, are often among the top components in many commodity funds.

Traders also noted buying interest ahead of the launch of the Shanghai gold futures contract.

But the stakes were being raised for a corrective sell-off as investors are holding record-large long positions already in the U.S. futures market, analysts said.

"There is definitely investor money coming into the market which is no surprise with economic environment's ongoing uncertain outlook," said Alexander Zumpfe, a trader at Heraeus.

There was market talk that buying by funds in gold on Tuesday totaled 5 tons, spreading across three to four brokers in clips of 60,000 ounces, traders said.

WIDER INVESTMENT

Broader investment interest in gold remained solid moving into 2008, with gold held in New York-listed StreetTRACKS Gold Shares, the world's largest gold-backed ETF, rising to a record high of 639.35 tons by Jan 7.