NEW YORK, March 13 (Reuters) - U.S. gold futures surged above the historic $1,000 mark on Thursday, as a record-low dollar and inflation fears due to crude oil rising to all-time highs prompted investors to enter the bullion market.
Fund managers and gold experts said they expect bullion could rise to further records as more and more investors turned to gold as an alternative investment, even though the metal could retreat due to profit taking in the short run.
"It's psychological and I view this by no means as a significant barrier to gold. And I think the market is going to continue to work its way higher," said Bill O'Neill, managing partner of LOGIC Advisors in Upper Saddle River, New Jersey.
"I don't think the mentality relative to the credit crisis will be changing for a while. I can't predict the end of it, but we're not finished here, it's going to drive gold to $1,100 in my view."
The active gold contract for April delivery GCJ8 on the COMEX division of the New York Mercantile Exchange settled up $13.30 or 1.4 percent at $993.80 an ounce. It traded between a bottom of $982.70 overnight and a record high of $1,001.50.
The dollar plunged below 100 yen for the first time in over a decade and hit a record low versus the euro as worries deepened on Wall Street that the United States had entered a recession.
Returns on U.S. holdings are eroding for foreign investors and many see precious metals as hard assets that can protect portfolios.
"Well, tell me what the dollar is doing to do and I'll tell you what gold will do. To the extent that the dollar continues to weaken, we would expect to see the gold price do well," said Victor Flores, mining analyst at HSBC in New York.
Market-watchers also said that the Federal Reserve's resolve to cut interest rates to boost the ailing U.S. economy will be supportive to gold.
RECORD OIL FUELS GOLD RALLY
Crude oil prices surged to another record on Thursday, boosting gold's appeal as a hedge against inflation. In early morning trading, U.S. crude futures CLc1 had soared to an all-time high of $111 a barrel. Oil settled up 41 cents at $110.33 a barrel.
"It is a reflection of oil prices hitting $110 and a recycling of petrodollars. We are seeing countries exporting oil putting money into the euro, yen and gold," said Frank Holmes, chief executive of U.S. Global Investors in San Antonio, Texas, which manages more than $5 billion in mutual fund assets.
"Short-term, gold is due for a correction, long-term it is valued at over $2,000 an ounce, because all commodities are above their inflation-adjusted 1980 prices except for gold," Holmes said.
Gold is up 20 percent this year. In January it surpassed the historic milestone from January 1980. That year, bullion peaked at $850 an ounce against a backdrop of high inflation linked to strong oil prices, the Soviet intervention in Afghanistan and the Iranian revolution.
At 2:15 p.m. EDT (1815 GMT), spot gold XAU= was quoted at $991.00/991.80, up from $981.90/982.70 at the close Wednesday. London bullion dealers fixed the afternoon spot price at $995.00 an ounce.
COMEX estimated 1 p.m. gold futures volume at 137,827 contracts and gold options at 10,840 lots. Total turnover in Chicago Board of Trade electronic 100-oz gold futures was 27,475 lots at 3:02 p.m. (www.cbot.com/cbot/pub/page)
COMEX's May silver SIK8 finished up 42.5 cents, or 2.1 percent, at $20.42 an ounce. It traded between a bottom of $20.180 and a high of $20.980.
Spot silver XAG= jumped to $20.42/20.47 from $20.04/20.09 at Wednesday's close. London silver was fixed at $20.79.
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The active NYMEX platinum contract for April delivery PLJ8 rose $27.50 or 1.3 percent to close at 2,097.50 an ounce. Spot platinum XPT= fetched $2,098/2,108.
NYMEX June palladium PAM8 closed $5.00 or 1 percent higher at $515.90 an ounce. Spot palladium XPD= was at $508/513. (Reporting by Frank Tang, editing by Matthew Lewis)