| NEW YORK
NEW YORK Gold rallied to a near one-year high on Monday with traders and analysts citing both fund buying and possible central bank demand as markets opened a new quarter against the backdrop of a weak dollar.
The dollar retreated from its three-week high against a basket of major currencies after a rise in U.S. manufacturing activity prompted more risk taking.
The spot price of bullion peaked above the $1,790 an ounce level last seen in November 2011.
Dealers said a flurry of fund-related buying led to nearly 4.0 million ounces of gold changing hands on the U.S. futures market in a matter of moments.
Some suspected that central banks were also in the market, given the soft, long-term outlook for the dollar from stimulus action planned for economic recovery.
"When the dust settles, I wouldn't be surprised at all if we learn that central banks have been buying gold over the last couple of weeks" said Adrian Day of Adrian Day Asset Management in Annapolis, Maryland.
"The central banks typically do not tell upfront if they're buying gold, but they were in the market during the summer, as we belatedly found out, and they could be keeping up with that momentum now," said Day, whose firm manages about $200 million in commodities, about a third of that in gold holdings.
Although demand for bullion fell 10 percent in the second quarter versus the first, the decline was partly offset by an acceleration in central bank buying, the World Gold Council said in a report in August.
Bullion traded from below $1,530 an ounce to just above $1,680 in the second quarter, with the spot price declining 4 percent from the previous quarter. In the third quarter, it traded above $1,787, gaining nearly 11 percent.
In Monday's session, bullion peaked at $1,791.20, its highest since November 14 last year when it rose above $1,795.
U.S. gold futures' most-active contract, December, rose to above $1,794, its highest since February 29, when it crossed $1,800. It settled up 0.5 percent at $1,783.30.
Analysts said the futures market could take out the February peak in the next few sessions if risk appetite remained strong and the dollar weak.
This week holds a number of risk events for markets, including the monthly report on U.S. unemployment on Friday and a European Central Bank policy meeting. Monday's data showed U.S. manufacturing expanded unexpectedly in September, for the first time since May, as new orders and employment picked up.
Gold is also expected to take its cue from the euro, which recovered from a three-week low against the dollar on Monday, analysts said.
But the rally in the euro could fizzle with concerns running high about when, and not if, Spain would request a bailout in exchange for the ECB lowering its borrowing costs.
As such, gold prices could also be volatile.
"You might see a print above $1,800, but above there, you will get the sellers coming in," said Robin Bhar, an analyst in London for Societe Generale.
US JOBS COULD BE KEY
Some expected the market to move moderately until Friday's release of September U.S. jobs data.
A Reuters poll shows economists expect 115,000 workers to have been added to non-farm payrolls in September, following August's 96,000-rise. <ECI/US>
The U.S. Federal Reserve pledged last month to pump $40 billion in new cash into the financial system every month until the economy generates enough jobs to lower the unemployment rate. Fed Chairman Ben Bernanke reiterated on Monday that the central bank will keep a highly accommodative monetary policy for a considerable time after the economy recovers.
The Fed aside, the ECB and the central bank of China have also rolled out stimulus measures over the past month.
Despite the inflationary impact from such action, few expect a smooth rise in gold prices, especially if the dollar surges on euro zone weakness.
"Overall, I still think one has to buy (gold) on dips," said Afshin Nabavi, head of trading at MKS Finance. "Investors that missed the boat (at lower price levels) perhaps want to see if we get to $1,800 before they get back in."
Gold priced in euros rose 0.2 percent on the day to 1,380.61 euros an ounce, having touched a record high earlier in the day at 1,386.38 euros. The euro price of gold has risen by nearly 14 percent this year.
(Additional reporting by Amanda Cooper in London; Editing by Leslie Gevirtz)