NEW YORK (Reuters) - Gold extended its record-breaking rally to a second day on Thursday as the dollar slumped to its lowest level this year, prompting investors to buy the metal as a hedge against currency depreciation.
Silver also hit a 30-year peak for a second straight session, rising above $24 an ounce, as precious metals gained broadly after data showed new U.S. claims for jobless benefits rose last week, hardening the view the Fed will resume buying government debt to stimulate economic growth.
The world’s largest gold-backed exchange traded fund, however, reported further outflows in October, signaling possible exhaustion of investor interest, analysts said.
“Gold benefits from the persistent rise of foreign currencies against a weaker dollar. Since the dollar is the proxy for U.S. gold prices, the metal is expected to gain further as the dollar goes lower,” said Adam Klopfenstein, senior market strategist at Lind-Waldock, a unit of MF Global.
Also boosting gold’s underlying demand are growing concerns over the handling of U.S. home foreclosures, which could harm the fragile housing market and broader economy if the issue escalates, analysts said.
Bank shares were hard hit and Wall Street dropped nearly 1 percent on the back of foreclosure woes.
Spot gold hit a high of $1,387.10 an ounce and was trading up 0.6 percent at $1,378.80 an ounce at 4:02 p.m. EDT (2002 GMT). Gold prices have risen more than 25 percent this year.
U.S. December gold futures settled up $7.10 at $1,377.60 an ounce. COMEX gold futures volume was a busy 184,600 lots, 33 percent above the 30-day average.
The U.S. dollar index .DXY, which measures the dollar’s performance against a basket of six major currencies, fell to its lowest level this year. The Australian dollar flirted with parity as selling in the greenback spread after Singapore widened its currency trading band.
Gold, which is denominated in dollars, tends to move in the opposite direction to the U.S. currency. The correlation between bullion and the U.S. currency has increased to a negative 0.54, near its strongest inverse relationship in 5 months.
Interest in gold-backed exchange-traded funds showed signs of fading, with holdings of the world’s largest, SPDR Gold Trust, declining further on Wednesday. They have fallen some 19.5 tonnes since the end of September.
Lind-Waldock’s Klopfenstein said the outflow in SPDR Gold could be related to selling and increased volatility ahead of an option expiration of the ETF on Friday.
Decent physical buying in the metal’s biggest consumer India ahead of Hindu festivals such as Diwali, a major gold-buying event, is offseting weaker investment buying, Klopfenstein said.
On a positive note, Swiss bank UBS raised its one-month forecast for gold to $1,425 an ounce from $1,300, saying it sees limited downside potential for gold ahead of the Fed’s November meeting.
Silver set a 30-year high at $24.90 an ounce and was trading up 2.7 percent at $24.56.
Among other precious metals, palladium rallied to a fresh nine-year high at $603 an ounce, lifted by strength in gold, dollar weakness and improving auto demand.
Palladium was further trading up 1.7 percent at $600.50, while platinum gained 0.4 percent at $1,709 an ounce.
Additional reporting by Jan Harvey in London; editing by Jim Marshall