| NEW YORK/LONDON
NEW YORK/LONDON Gold moved back toward its all-time high on Monday, despite late gains in the dollar, as investors prepared for what many see as a likely second round of economic stimulus by the U.S. Federal Reserve.
The U.S. dollar regained strength against the euro and yen in late buying by investors who viewed its recent decline as too far, too fast. <USD/>
But gold buyers looked past the short term, betting instead that the Federal Reserve would almost certainly implement so-called QE2 -- a second round of quantitative easing to stimulate sputtering economic growth.
By 3:40 p.m. EDT (1940 GMT) spot gold had risen to $1,353 an ounce, above Friday's closing bid at $1,343.25 but below the all-time high of $1,364.60.
In New York, COMEX December gold futures closed $9.10 higher at $1,354.40 an ounce, setting a session peak at $1,356.30 as they approached their record at $1,366.
Many players think the Fed will implement QE2 at its next meeting after mid-term congressional elections, said Sterling Smith, a Country Hedging Inc analyst in St Paul, Minnesota.
To boost the economy, the Fed is expected to print money in order to buy U.S. government debt, which would be dilutive to the dollar, Smith said.
Dollar weakness favors gold, not only because of exchange rate differentials in non-U.S. markets, but also because the yellow metal has been sought as an alternative to currency investment and as a more solid asset than stocks.
The dollar has lost significant ground in recent weeks due to speculation that the Fed will introduce further monetary easing after a spate of soft economic data.
Many investors saw Friday's tepid to weak U.S. employment report for September as the nail in the coffin that convinced many investors the Fed would have to go forward with QE2.
Afshin Nabavi, head of trading at MKS Finance in Geneva, said he remained broadly positive on gold, with the dollar the main driver of the market.
"$1,339-$1,340 ought to remain good support," he said. "A breach of that could send us to $1,335, but I still think $1,400 a good possibility for the year-end."
The dollar faced early pressure from the International Monetary Fund's failure to reach an accord on how to tackle currency tensions at meetings over the weekend.
By late Monday, the dollar edged higher against the euro and yen as traders booked profits on bets against the greenback, failing to take out key resistance levels.
Expectations for further quantitative easing are likely to keep boosting precious metals, analysts said.
"We view quantitative easing and its monetary consequences as an unequivocal benefit for gold and silver in particular, as investors seek out their role as stores of value in times of fiat currency risk," Morgan Stanley said in a note.
As well as currency effects, gold is being supported by expectations investors will add to their bullion holdings as a portfolio diversifier, in private and official sectors.
Russia's central bank has bought over 100 tonnes of gold on the domestic market this year, board member Sergei Shvetsov said, and speculation is rife that other central banks, mainly in Asia, will also lift their holdings.
Silver hit its highest level since 1980 at $23.65 an ounce and was later up at $23.31 versus $23.20.
Holdings in the iShares Silver Trust, the world's largest silver-backed exchange-traded fund, rose to a new all-time high at 10,085.62 tonnes on Friday.
The gold-silver ratio -- the number of ounces of silver needed to buy an ounce of gold -- fell to 57, its lowest in more than two years, from 68 in late August.
(Reporting by Carole Vaporean in New York and Jan Harvey in London; Editing by Dale Hudson)