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Gold hits record above $880 as fund cash pours in

NEW YORK/LONDON (Reuters) - Gold surged to a record high above $880 per ounce on Tuesday as funds poured into the market amid a broad commodity rally, confident of further upside in the metal with support from a weaker dollar and firm oil.

Gold bars are displayed at South Africa's Rand Refinery in Germiston May 30, 2006. Gold hit a fresh record of $872.10 per ounce in early European trading on Tuesday, lifted by firm oil prices, with longer-term trends of a weakening dollar and economic worries set to attract more investment, traders and analysts said. REUTERS/Siphiwe Sibeko

Spot gold XAU= sprinted to a record $881.10 an ounce, surpassing the historic high of $869.05 hit last week.

Bullion traded at $878.10/878.90 by New York’s last quote at 2:15 p.m. EST, up sharply from $859.70/860.40 quoted late in New York on Monday.

U.S. gold futures finished above $880 after scaling a record high. The most-active gold contract for February delivery GCG8 settled up $18.30 or 2.1 percent at $880.30 an ounce on the COMEX metals division of the New York Mercantile Exchange.

The contract hit a session high of $884.00, surpassing the previous record high of $875 set January 21, 1980 for COMEX futures on a continuous spot-month basis.

“I think gold is starting to come into its own now as a currency, and people have started to realize it,” said Neal Greenberg, trader with RBC Proprietary Trading at Red Bank, New Jersey.

Traders and analysts said gold and other commodity prices had found support so far in January from fund reallocation cash, with pension funds and other long-term investors having pumped an estimated $100 billion or more into commodities over the past five years.

“There’s significant buying from people re-rating their commodity indices and adding to the amount of gold they have,” said Ross Norman, managing director at TheBullionDesk.com.

Gold, along with crude oil, are often among the top components in many commodity funds.

Traders also noted buying interest ahead of the launch of the Shanghai gold futures contract.

But the stakes were being raised for a corrective sell-off as investors are holding record-large long positions already in the U.S. futures market, analysts said.

“There is definitely investor money coming into the market which is no surprise with economic environment’s ongoing uncertain outlook,” said Alexander Zumpfe, a trader at Heraeus.

There was market talk that buying by funds in gold on Tuesday totaled 5 tons, spreading across three to four brokers in clips of 60,000 ounces, traders said.

WIDER INVESTMENT

Broader investment interest in gold remained solid moving into 2008, with gold held in New York-listed StreetTRACKS Gold Shares, the world’s largest gold-backed ETF, rising to a record high of 639.35 tons by Jan 7.

“The steady influx of money to gold ETFs ... and the large volume of shares in the big gold mines being traded are proof that there are still a large number of new investors attracted to this market, which should provide a support line for the price,” Commerzbank analyst Eugen Weinberg said in a note.

Fundamentals played in gold’s favor with a weaker dollar making the metal cheaper for non-U.S. investors.

Meanwhile, a sharp bounce in crude oil prices propelled bullion higher as gold is often used as a hedge against oil-led inflation. U.S. crude oil CLc1 ended up $1.24 at $96.33 a barrel on Tuesday, after falling almost $3 to $95 on Monday.

In Tokyo, the key December 2008 gold contract <0#JAU:> on the Tokyo Commodity Exchange (TOCOM) ended at 3,097 yen a gram, up 53 yen or 1.7 percent from Monday’s close of 3,044 yen.

In other metals, platinum advanced in line with sharp gains in Japanese platinum futures. Key TOCOM platinum for the December delivery closed up 1.5 percent at 5,313 yen a gram.

Japanese platinum futures often set the trend for the cash price as TOCOM is the most liquid market for the white metal.

Spot platinum XPT= rose as high as $1,547 an ounce and was last quoted at $1,547/1,552, versus $1,530/$1,534 quoted in New York late on Monday, closing in on last week's record $1,553.

Palladium XPD= rose to $376/379 an ounce from its previous finish of $365/$368, while silver XAG= was at $15.70/15.75, against $15.12/15.17 late in the U.S. market.

Additional reporting by Atul Prakash in London and Chikafumi Hodo in Tokyo, editing by Matthew Lewis

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