Gold Futures Index (GOLD)

[MUSHROOMKING]

LARGELY A DOLLAR STORY
Sliding dollar helps powers gold toward $1,120
The dollar index fell to 15-month lows as the yellow metal ventured ever closer to the $1,120 mark

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Author: Jan Harvey (Reuters)
Posted: Wednesday , 11 Nov 2009

LONDON (Reuters) -

Gold hit record highs near $1,120 an ounce on Wednesday as the dollar index .DXY fell to 15-month lows, with expectations that an erratic U.S. economic recovery will keep American interest rates low.

The metal is now poised for more gains, analysts said, with the weak dollar helping gold build on a rally that began last week after the IMF sold 200 tonnes of bullion to India's central bank, raising the prospect of more official sector buying.

Spot gold hit a high of $1,117.95 an ounce and was bid at $1,115.75 at 1441 GMT versus $1,105.30 late on Tuesday.

U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange rose $12.90 to $1,115.40 an ounce.

"Today's move has been largely a dollar story -- you've got euro/dollar testing fresh lows, the same with the dollar index," said Daniel Major, an analyst with RBS Global Banking & Markets.

"The trend for dollar weakness seems to be reasonably firmly in place, which of course is supporting gold."

The dollar index fell a quarter of a percent to a 15-month low of 74.831 and the euro rose to a two-week peak within sight of last month's 2009 high of just over $1.5060.

Analysts said the dollar was smarting after Fed officials said on Tuesday that high unemployment and sluggish consumer spending were risks to recovery in the U.S. economy, which may keep the Fed funds rate low.

Weakness in the unit boosts gold's appeal as an alternative asset, and makes dollar-priced commodities cheaper for holders of other currencies.

Gold prices also rose in non-dollar terms. Euro-denominated gold reached its highest since March at 743.27 euros.

"The way gold keeps accelerating away from its previous highs is quite incredible," said Saxo Bank senior manager Ole Hansen. "Continued momentum is driving prices higher. Whenever we see new highs, we see more momentum buying."

BARRICK SEES RECORD MARGINS

In supply news, Barrick Gold Corp (ABX.TO), the world's biggest gold producer, told Reuters it sees the potential for record margins in the fourth quarter as gold prices hit new peaks and costs are stable or lower.

In major gold producer South Africa, the country's biggest union said it had received the go-ahead from authorities for its workers to strike at Gold Fields (GFIJ.J) over a disputed recruitment assessment method.

On the demand side, physical buying was slack in Asia, with traders in India -- the world's biggest bullion consumer last year -- keeping to the sidelines as prices rose.

Vietnam's central bank said it will allow imports of gold -- banned since May last year -- after bullion prices rose sharply in recent days, potentially opening up a new source of demand.

Interest in gold exchange-traded funds also remained soft, with holdings of the largest bullion-backed ETF, New York's SPDR Gold Trust, unchanged on Tuesday.

But with the prospect of persistent dollar weakness boosting fund interest in gold and further central bank purchases seen as a distinct possibility, the outlook for gold prices is positive.

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

Among other precious metals, spot silver was bid at $17.63 an ounce against $17.32, tracking gold higher, while platinum was at $1,368 an ounce against $1,349.50.

Palladium was bid at $343.00 against $331.50.

Earlier it touched $346.75 an ounce, the highest since August 2008, partly because of fund buying and partly because demand expectations have been bolstered by strong car sales data from China, traders said.