November 10, 2009 / 12:34 AM / 10 years ago

Gold rises slightly, near record high

NEW YORK/LONDON (Reuters) - Gold rose slightly in choppy trade Tuesday on renewed buying interest amid central banks, but a dollar bounce decreased the precious metal’s appeal as a hedge against a depreciating U.S. currency.

A shopkeeper shows gold bangles to a customer at a jewellery shop in Mumbai November 4, 2009. REUTERS/Arko Datta

The metal found support from strong investor interest after the International Monetary Fund announced last week it had sold 200 tons of gold to India’s central bank, which prompted the metal to reach record highs.

The precious metal hit a record high of $1,110.85 an ounce on Monday as the dollar index, which measures the U.S. currency’s performance against a basket of six others, slipped to its lowest level since August 2008.

“Given all the noises hedge funds have been making, plus all the noise surrounding further potential central bank buying, it is difficult to see much of a downside,” said Societe Generale analyst David Wilson.

Spot gold was at $1,104.30 an ounce at 2:26 p.m. EST (1926 GMT), against $1,103.85 late in New York on Monday.

U.S. December gold futures settled up $1.10 at $1,102.50 an ounce on the COMEX division of the NYMEX.

Gold struggled to break new ground as the dollar rebounded slightly on Tuesday, with investors fearing the U.S. currency’s fall on Monday was overdone.

However, expectations the dollar will be unable to sustain gains is helping underpin bullion’s prices.

Strength in the U.S. currency dampens gold’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies. The dollar remains susceptible to further losses, analysts said.

“My feeling is we will actually see the dollar break down further in the next few weeks, and that will help take gold up to new levels,” said Standard Chartered analyst Daniel Smith.

U.S. investment bank Goldman Sachs (GS.N) said gold could rise to record highs in a range from $1,150 to $1,200 an ounce, driven by declining real interest rates and renewed buying interest by central banks.

DEMAND PICKS UP

Some physical demand for gold entered into the market, with holdings of the world’s largest exchange-traded fund, the SPDR Gold Trust in New York, rising just over 6 tons on Monday. <GOL/SPDR>

ETFs issue securities backed by physical stocks of an asset, and have proved a popular way for buyers to invest in gold this year without having to take delivery of the metal.

Gold buying in India, the world’s biggest bullion market last year, ticked higher as early strength in the rupee helped the metal, dealers said.

Among other precious metals, silver was at $17.28 an ounce against its previous session’s late quote of $17.57. But the metal is well positioned for gains, according to technical analysts who study past price movements to determine the future direction of trade.

The gold-to-silver ratio rose to 63.2 at the end of last week, against 60.7 at the end of September, suggesting silver has become cheaper relative to gold.

Platinum was at $1,342 an ounce against $1,357.50, while palladium was at $332.55 against $331. Both metals are primarily used in autocatalysts and have benefited from perceptions the economy is recovering.

Reporting by Frank Tang and Jan Harvey; Editing by Lisa Shumaker

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