Gold hits record above $1,110/oz

LONDON (Reuters) - Gold hit a record high above $1,110 an ounce in Europe on Monday as the dollar index .DXY slid 1 percent on expectations U.S. interest rates will remain low, boosting interest in the metal as an alternative asset.

Gold bars are pictured at the Ginza Tanaka store in Tokyo October 23, 2009. REUTERS/Issei Kato

Spot gold reached a peak of $1,110.85 an ounce, and was bid at $1,109.50 an ounce at 1:20 p.m., against $1,096.30 late in New York on Friday.

The precious metal is extending last week’s near 5 percent gains, when fund buying took it to record highs after India’s central bank bought 200 tonnes of gold from the International Monetary Fund and the dollar weakened further. Deutsche Bank trader Michael Blumenroth said some inflation fears are starting to be felt, while the weak dollar remains the key driver of the market. “People are expecting more weakness there,” he said.

“In general, the rally looks healthy,” he added. “Gold feels comfortable with four digits now.”

U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange rose $14.30 to $1,110.00 an ounce.

The dollar weakened broadly on Monday after a G20 meeting and U.S. jobs data did little to alter the view that U.S. interest rates will stay low for the foreseeable future, offering little incentive to buy the currency.

Weakness in the U.S. unit tends to benefit all dollar-priced assets, as it makes them cheaper for holders of other currencies.

Other commodities also rose, with industrial metals climbing across the board and oil prices gaining more than $1 a barrel. Strength in crude prices often helps support gold, which can be used as a hedge against oil-led inflation.

The Russian central bank’s first deputy chairman, Alexei Ulyukayev, said on Monday the central bank may buy gold from the state repository, Gokhran.

“Gold is supported by significant investment demand and central banks buying that are trying to diversify their reserves away from the falling dollar,” Fairfax analyst Marc Elliott said in a note.


Demand for physical gold was soft, however, with high prices curbing appetite for bullion in major consumer India, although a strong rupee lent support.

Dealers noted sales from Indonesia but the limited amount of scrap being returned to the physical market, despite record prices, suggested that holders expected more gains.

European traders noted that gold’s strength in currencies other than the dollar suggested gains could be resilient.

Gold priced in euros held near its highest since March at 740.69 euros on Monday, while sterling-denominated gold hit 661.88 pounds, within reach of eight-month highs.

The world’s largest bullion-backed exchange-traded fund, New York’s SPDR Gold Trust, said its holdings were unchanged on Friday from the previous session.

ETF Securities said holdings of its ETFS Physical Gold PHAU.L fund rose more than 2 percent to 3.324 million ounces on Friday.

Among other precious metals, silver was bid at $17.68 an ounce versus $17.38, platinum at $1,353 an ounce versus $1,342.50, and palladium at $331 against $327.50.

Both platinum and palladium held near the multi-month highs they hit in late October, as traders bet strength in gold prices and an expected recovery in demand from carmakers, the major consumers of the platinum group metals, will buoy prices.

Data released on Monday showed China’s passenger cars sales surged 75.8 percent in October from a year earlier, extending the explosive growth of recent months as government incentive policies continued to lure customers.

Reporting by Jan Harvey; Editing by Anthony Barker