* Spot gold rallies above $1,000, highest since March 2008
* Technical momentum, options activity drive buyers
* Analysts question sustainability of the rally
(Recasts, updates prices, market activity to close; adds
second byline, dateline, previous LONDON)
By Frank Tang and Humeyra Pamuk
NEW YORK/LONDON, Sept 8 (Reuters) - Gold surged past $1,000
per ounce on Tuesday on pent-up technical momentum and dollar
weakness, but ultimately closed shy of the key psychological
barrier, although it was slightly higher than Friday's close.
Some analysts said they believed the precious metal would
finally break through last year's record high at $1,030.80, but
others warned that the $1,000 level was not sustainable.
Spot gold <XAU=> rose to $1,007.45 an ounce, its highest
price since March 2008, when bullion touched the $1,030.80
record. It was trading at $995.80 an ounce at 3:09 p.m. EDT
(1909 GMT), versus $993.85 an ounce late in New York on
Monday.
U.S. December gold futures <GCZ9> settled up $3.10 at
$999.80 an ounce on the COMEX division of the New York
Mercantile Exchange, versus Friday's close at $996.70 an ounce
before the U.S. long weekend.
"Gold's probably the most technically traded financial
instrument in the world," analyst David Thurtell at Citigroup
in London.
"Where can it go? If it closes through $1,010 and plus
tonight, you'd have to think there would be a lot of very
nervous shorts around that are getting close to covering, and
then it really could pop and go up another $50 quite quickly,"
he said.
Brian Hicks, a portfolio manager at Texas-based U.S. Global
Investors, which manages more than $2 billion mutual fund
assets, said gold rallied in advance of a sharp decline of the
dollar due to a rosy economic outlook.
"Gold is hitting $1,000 mainly due to the breakdown in the
dollar today," Hicks said. He also cited stronger commodities
and rising inflation expectations amid improving economic
sentiment.
For a technical story on gold, see [] and for a
snap analysis on gold's price prospects, see []
Other analysts questioned the sustainability of the
precious metal's rally above $1,000 an ounce, which also helped
boost palladium and silver to 2009 highs.
UBS analyst John Reade said in a note to clients that gold
options had moved sharply after breaking through $1,000.
"Today's move in implied volatility suggests ... that a
scramble for upside gold options could lead the spot gold price
higher," he said.
"We are unconvinced that all the ingredients are in place
for a sustained surge higher in gold," he added.
Implied volatility is a measure of demand for options,
which investors use to take advantage of, or protect themselves
against, sharp movements in spot rates.
Spot gold has made three attempts to rise and stay above
$1,000. The market stayed above the key level for one day in
February and three days in record-setting March 2008.
SUSTAINABLE?
The $1,000 an ounce level is far from an inflation-adjusted
record for gold. Analysts at GFMS put that as high as $2,079
per ounce.
Some analysts have said the higher gold price reflects
uncertainty across markets about how central banks will
untangle themselves from fiscal stimulus aimed at reviving
economic growth, as well as dollar weakness.
"Gold is celebrating because the day when inflation might
return is getting sooner rather than later," Ashok Shah, chief
investment officer at London and Capital.
"As long as the authorities are intent on not reversing
their policies, then gold will remain in demand and it will be
wanted," Shah said.
In other metals, silver <XAG=> hit a 13-month high of
$16.81 an ounce and was at $16.42 an ounce versus $16.29 an
ounce. Palladium <XPD=> touched $296.50 an ounce, its highest
since September last year. It was last at $293 an ounce versus
Monday's finish of $291.50.
Platinum <XPT=> was at $1,285 an ounce versus $1,255.00 an
ounce on Monday.
For a graphic on gold futures versus the S&P index click
on:
http://graphics.thomsonreuters.com/099/CMD_GLDSP0909.gif
Close Change Pct 2008 YTD
Chg Close Pct Chg
US gold <GCZ9> 999.80 3.10 0.3 884.30 13.1
US silver <SIZ9> 16.510 0.225 1.4 11.295 46.2
US platinum <PLV9> 1289.60 30.50 2.4 941.50 37.0
US palladium <PAZ9> 298.60 2.60 0.9 188.70 58.2
Prices at 3:09 p.m. EDT (1909 GMT)
Gold <XAU=> 996.15 2.30 0.2 878.200 13.4
Silver <XAG=> 16.43 0.14 0.9 11.30 45.4
Platinum <XPT=> 1285.00 30.00 2.4 924.50 39.0
Palladium <XPD=> 293.00 1.50 0.5 184.50 58.8
Gold Fix <XAUFIX=> 1000.75 7.75 0.8 836.50 19.6
Silver Fix <XAGFIX=> 16.750 0.540 3.3 14.760 13.5
Platinum Fix <XPTFIX=> 1280.00 0.00 0.0 1529.00 -16.3
Palladium Fix <XPDFIX=> 296.00 0.00 0.0 365.00 -18.9
(Additional reporting by Veronica Brown in London and Chikako
Mogi in Tokyo; Editing by Lisa Shumaker)
