Gold powers to record high on dollar, eyes $1,000/oz

LONDON (Reuters) - Gold set an historic high above $975 on Friday, propelled by speculative buying on the back of record high oil and a lifetime-low dollar against the euro.

The metal pared gains later as some investors took profits, but market sentiment remained bullish. Silver jumped to a 27-year peak near $20 an ounce before falling, while palladium surged nearly 4 percent to its highest in more than six years.

Gold set a record for the third straight day, hitting $975.90 an ounce before falling to $971.10/971.85 at 11:09 a.m. EST, versus $968.90/969.70 in New York late on Thursday. It has risen 16 percent this year on the top of 32 percent rise in 2007.

"All the newsflow coming out of the U.S. is hugely bullish for the gold market. In the end, what lower interest rates mean is that it will be difficult for the dollar to come back strongly," said Michael Widmer, analyst at Lehman Brothers.

"Inflationary pressures are something that are also playing into the market. Fundamentals are strong and I think $1,000 would not be an end. We are going to go higher from there."

The dollar lingered near record lows against a basket of major currencies, pressured by concerns about the U.S. economy and expectations of further aggressive interest rate cuts.

A report indicating that U.S. core inflation, which the Federal Reserve watches, matched economists' median forecasts had little impact on investor expectations for rate moves. Core prices strip out volatile food and energy costs.

A rate cut tends to weaken the dollar as investors shift assets for better returns. A weaker dollar makes gold cheaper for other currency holders and lifts metal demand. Gold is also seen as a hedge against oil-led inflation.

Oil prices fell more than $1 after hitting a record peak above $103 a barrel.

"It looks very likely that we will go above $1,000," Michael Lewis, global head of commodities research at Deutsche Bank, said in London.

"The next focus is the degree of Fed easing at the next FOMC meeting on March 18. So that would be another possibility that we would start to see dollar weakness accelerating," he said, referring to the U.S. Federal Open Market Committee.

"There is a non-linear relationship between gold and the dollar, whereby incremental weakening in the dollar has a bigger impact on the gold prices," he added.

INFLATION-ADJUSTED PRICE

While oil is at a record price in inflation-adjusted as well nominal terms, gold has been lagging. According to analysts at metals consultancy GFMS Ltd, gold's inflation-adjusted record high was $2,119 an ounce at 2007 prices.

Gold quoted in euros has jumped 26 percent to above 641.83 euros in the past 12 months, while in terms of the dollar, it has surged 44 percent during the same period.

"While gold's movements over the past 24 hours have pushed the metal back into overbought territory, its does appear that the scale of demand is sufficient to propel gold to $1,000/oz," said James Moore, metals analyst at TheBullionDesk.com.

In other metals, silver rose to $19.92 an ounce before falling to $19.65/19.70, versus $19.74/19.79 in New York. Palladium hit a high of $582 an ounce and was last at $565/570, against $560.00/564.00 late in New York.

Platinum rose to a high of $2,161 an ounce and was last at $2,153/2,163, versus $2,135/2,140 on Thursday and last week's record of $2,192.

Platinum, used in jewellery and auto catalysts, has jumped more than 40 percent this year after mines in South Africa, accounting for 80 percent of world output, were shut for five days at the height of last month's power crisis.

A South African minister said on Friday the country's mining industry would get priority under measures aimed at cutting electricity use to solve a power crisis.

(Reporting by Atul Prakash; editing by Michael Roddy)