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LONDON (Reuters) - Gold rose to a third successive record high on Thursday, putting it on track for its strongest weekly performance in six months, as expectations for the Federal Reserve to prop up the economy undermined the dollar.
The Fed is widely expected to resume quantitative easing -- in which the central bank would buy government bonds for example and pump extra cash into the financial system to keep interest rates low -- which has pushed the dollar down 7 percent against a basket of currencies in the last month.
Gold, which usually benefits from dollar weakness due to its inverse relation with the U.S. currency, has gained nearly 10 percent in the same period.
Spot gold was last at $1,359.75 an ounce at 38 GMT, up from $1,345.80 late on Wednesday, but down from an all-time peak of $1,364.60 struck earlier in the day.
The price has risen by 3.2 percent so far this week, its largest weekly rise since mid-April.
U.S. gold futures for December delivery hit a fresh record high at $1,366 an ounce, before easing slightly to show a 1 percent gain on the day at $1,361.00.
"We look at the reasons for holding gold and other precious metals and, above everything else, it is the idea of a store of value to protect against currency debasement," said Natixis strategist Nic Brown. "Whether you're undergoing quantitative easing or whether you're devaluing your currency against others, it all adds up to pretty much the same thing."
"As a consequence, governments are delaying any fiscal austerity, while monetary authorities are rolling out additional quantitative easing measures over and above the exceptionally low interest rates that are already in place, that is just good for gold."
Gold retreated from earlier highs after the world's third-largest producer of the metal, Anglogold Ashanti (ANGJ.J) said it had completed the buy-back of its hedgebook, previously the largest in the industry.
But on a supportive note for gold, the central bank in key consumer Vietnam saying it would consider granting permits for gold imports, which have been banned for over two years, if domestic prices rose "unreasonably high.
"People are going to focus on the fact that Asian physical market will be tight. Last time Vietnam opened the door to gold imports, gold went up $20. In percentage terms, it could translate into $30 today," said a Singapore-based trader.
In more fundamental news for gold, the World Gold Council said it expects central banks to be net buyers of gold in 2011, for the first time in nearly two decades.
Nervousness over the outlook for U.S. growth was heightened on Wednesday after a survey of private-sector employment showed a surprise contraction in September, which further unsettled investors ahead of Friday's key employment report.
"With expectations for quantitative easing high, data monitoring between now and the November 3 (Fed policy setting) meeting becomes even more significant," wrote UBS analyst Edel Tully in a note.
"The short-term direction of the US dollar, and therefore gold, will be influenced by tomorrow's US payrolls data: a positive or negative deviation from expectations will weigh heavily on market thinking about quantitative easing prospects."
Short-term U.S. Treasury yields are around record lows, while European equities .FTEU3 dipped ahead of interest rate decisions from both the European Central Bank and the Bank of England later in the day.
The strength in gold extended to the other precious metals.
Spot silver hit a new 30-year high at $23.51 an ounce, and was last quoted at $23.41, up from $23.13.
Holdings in the iShares Silver Trust, the world's largest silver-backed, exchange-traded fund, rose to a fresh record high of 9,944.14 tonnes.
In comparison, holdings in the SPDR Gold Trust remained unchanged for two straight days.
Platinum group metals followed the rally in gold. Spot platinum rose to $1,723, its highest since mid-May and was last up 1.5 percent on the day at $1,721, while palladium hit a new nine-year peak at $602.50 and was last up nearly 4 percent at $600.50.
Additional reporting by Rujun Shen in Singapore