Gold price rises as dollar drops

By Frank Tang and Rebekah Curtis

NEW YORK/LONDON (Reuters) - Gold prices ran above $1,060 an ounce on Monday as robust U.S. economic data boosted risk appetite and pressured the dollar, enhancing the metal's appeal as a hedge against a falling greenback.

Buying sentiment improved after the world's biggest gold producer Barrick Gold (ABX.TO) and AngloGold Ashanti (ANGJ.J), the world's No.3 gold miner, said they might buy back their hedge positions ahead of plan. Such a move would indicate the companies expect gold prices to rise.

Jonathan Jossen, COMEX gold options floor trader, noted that buying interest in gold increased on the first trading day of a new fiscal year for many U.S. investment funds.

"There (is) surely more activity in the gold options" because of a spike in volatility in the equities market, Jossen said. The CBOE Volatility index, a key measure of market volatility, stayed above 30 after last Friday's surge as stocks slumped.

Spot gold was at $1,055.25 an ounce at 2:17 p.m. EST (1917 GMT), compared with $1,044.40 late in New York in the previous session.

Earlier in the session, bullion rose above $1,060 an ounce, closing in toward its record high of $1,070.40.

U.S. December gold futures settled up $13.60, or 1.3 percent, at $1,054 an ounce on the COMEX division of NYMEX.

Data released earlier in the day showed that U.S. manufacturing activity grew in October and that pending home sales were encouraging.

Gold started showing some signs of independent strength while currency markets were muted.

India's front-month gold futures contract on the Multi Commodity Exchange of India Ltd (MCX) struck a record high of 16,099 rupees per 10 grams on Monday, while gold priced in euros also rallied strongly.

"The dollar helped today, but overall gold seems to have some strength on its own. There's still some room on the upside," said Alexander Zumpfe, precious metals trader at Heraeus.

The dollar fell in choppy trade against the euro, lending support to the metal.

Last week, gold registered its first weekly loss since the week of September 25 after dollar weakness helped to spur four consecutive weeks of gains.

Analysts were broadly upbeat on the market's chances of eking out more gains due to expectations that the dollar will decline further.

"On a relative basis U.S. interest rates remain very low. Also, the Fed has been a lot more aggressive on quantitative easing than any other central bank, which is not good for dollar strength," said Walter de Wet, analyst at Standard Bank in London.