* Dollar weakness after report on oil pricing fuels gold
* Gold price still below inflation-adjusted record high
* SPDR gold ETF holdings rise for second successive day
(Recasts, updates prices, market activity, adds comments,
second byline, dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 6 (Reuters) - Gold surged to a record
high above $1,040 per ounce on Tuesday, fueled by a steadily
falling U.S. currency, which prompted investors to buy gold as
a hedge against dollar-denominated portfolios.
Both spot gold prices <XAU=> and U.S. gold futures <GCZ9>
have benefited from a convergence of factors, including the
dollar's decline, technical buying momentum and worries about
potential inflation as central banks struggle to emerge from
unprecedented fiscal stimulus measures.
"In an environment where interest rates are virtually zero,
the incremental cost of moving into gold is nil. It stands to
reason for investors that gold is more desirable," said Jack
Ablin, chief investment officer at Harris private bank in
Chicago.
Spot gold <XAU=> hit a historic $1,043.45 per ounce, and
was last up 2.2 percent at $1,039.40 at 12:43 p.m. EDT (1643
GMT), compared with $1,016.65 quoted late in New York on
Monday.
However, Tuesday's all-time high was still sharply below
the inflation-adjusted record pinpointed by analysts. Metals
consultancy GFMS put that figure as high as $2,079 an ounce.
For a graphic on inflation-adjusted gold price:
http://graphics.thomsonreuters.com/109/GLD_PRCINF1009.gif
Most-active U.S. gold December futures <GCZ9> hit an
all-time high $1,045, surpassing the previous record for the
contract of $1,033.90 set in March 2008 on a second-month
continuation basis. December was last at $1,039.30 an ounce.
The metal also hit six-month highs when priced in sterling
<XAUGBP=R> and euros <XAUEUR=R>, breaking above 700 euros an
ounce for the first time since early April.
For a graphic on gold's price in dollars and euros, click
on:
http://graphics.thomsonreuters.com/109/GLD_PRCEUR1009.gif
A positive technical picture for gold fueled buying on the
fund side, traders said. However, the weight of near-record
long positions in New York gold futures still leaves the market
vulnerable to a correction.
The dollar slipped sharply after UK newspaper the
Independent said Gulf Arab states were in secret discussions to
end the use of dollars in oil trading. Big oil-producing
countries later denied the report. []
Peter Fertig, a consultant at Quantitative Commodity
Research, said the final quarter is typically strong for gold,
due to a seasonally soft dollar and rising jewelry demand,
which is expected to be weaker than usual this year.
"That is the major driver of investment demand," he said.
"The speculation, even if it has been denied, that Gulf
states would like to peg oil prices to a currency basket and
not the U.S. dollar alone has been a positive factor for gold,
while weakening the dollar against other major currencies."
COMMODITIES CLIMB
Among other commodities, oil and base metals climbed on the
back of the U.S. currency weakness, which makes dollar-priced
assets cheaper for holders of other currencies. Strength in
other commodities is often reflected in gold. [] []
Physical demand for the metal also trickled through. The
largest gold exchange-traded fund, New York's SPDR Gold Trust
<GLD>, said its holdings rose 1.5 tonnes on Monday. []
Traders said they were also seeing rising demand in India,
the largest consumer of gold last year, ahead of the Diwali
festival on Oct. 19. []
Mark Cutifani, chief executive of AngloGold Ashanti
<ANGJ.J>, the world's third largest and Africa's top gold
producer, said he saw gold prices at $950 to $1,100 an ounce in
the next 12 months, and they could break $1,100 if the U.S.
economy continued to dip and investment demand rises.
[]
The yellow metal's gains helped lift silver to a two-week
high of $17.36 <XAU=> an ounce as investors bought it as a
cheaper proxy for gold. Silver, which has the market
characteristics of both the precious and industrial metals
<XAG=>, was later at $17.25 an ounce against $16.59. Palladium
<XPD=> hits its highest since August last year at $308.50. It
was last at $307.50 against $298.50.
Platinum, the precious metal widely used in autocatalyst
manufacturing, also benefited from gold's climb, as well as the
better appetite for risk demonstrated by rising equity markets.
Platinum <XPT=> was at $1,315 an ounce against $1,293.
For an INSTANT VIEW on gold's surge, click on
[]
Also see TAKE A LOOK-Gold hits record high on
[]
For graphic on gold's correlation with stocks, the dollar
and oil:
http://graphics.thomsonreuters.com/109/GLD_PRCCRR1009.gif
Prices at 1:12 p.m. EDT (1712 GMT)
Last Change Pct 2008 YTD
Chg Close % Chg
US gold <GCZ9> 1039.20 21.40 2.1 884.30 17.5
US silver <SIZ9> 17.270 0.735 4.5 11.295 52.9
US platinum <PLF0> 1323.20 21.40 1.6 941.50 40.5
US palladium <PAZ9> 308.70 5.40 1.8 188.70 63.6
Gold <XAU=> 1037.70 21.05 2.1 878.20 18.2
Silver <XAG=> 17.22 0.63 3.8 11.30 52.4
Platinum <XPT=> 1313.50 20.50 1.6 924.50 42.1
Palladium <XPD=> 304.00 5.50 1.8 184.50 64.8
Gold Fix <XAUFIX=> 1038.75 18.50 1.8 836.50 24.2
Silver Fix <XAGFIX=> 16.95 72.00 4.4 14.76 14.8
Platinum Fix <XPTFIX=> 1310.00 10.00 0.8 1529.00 -14.3
Palladium Fix <XPDFIX=> 302.00 2.50 0.8 365.00 -17.3
(Additional reporting by the New York Treasury Desk and
Veronica Brown in London; Editing by Lisa Shumaker)
