Gold hits record highs as dollar slides

TOKYO (Reuters) - Spot gold and futures hit record highs on Wednesday as the dollar extended losses to a 14-month low against a basket of currencies on growing optimism about the global economy.

Spot gold hit a peak of $1,069.45 per ounce, taking

gains since the start of September alone to 13 percent, while the

most-active December gold futures rose to a high of $1,071.10.

The dollar is pressured by expectations of continued low U.S. interest rates, prompting investors to buy higher-yielding currencies and assets including commodities, pushing oil to its highest in nearly a year above $75 a barrel on Wednesday.

Gold has benefited from the dollar's weakness which makes bullion more affordable for non-dollar holders, as well as fears that current global monetary easing will stoke severe inflation.

"There is a self-sustaining momentum in the market, taking its cues from dollar weakness to use gold as a currency alternative, with the macroeconomic environment also lending support," said Koichiro Kamei, managing director at financial research firm Market Strategy Institute.

Despite gold hitting a new record, it is far from an inflation-adjusted record, which analysts at GFMS have put as high as $2,079 per ounce.

The market rally comes at a time when speculative net long futures positions hit an all-time high in the week ended Oct. 6, suggesting growing risks for these long positions to be cleared and making an eventual sharp price correction increasingly likely.

"Ironically, wariness about these net long futures positions has prevented the rally from becoming overheated. But because price rises have been gradual, investors who thought they missed out on buying are continuously drawn to the market, making the rally slow but sustainable," Kamei said.

At 0530 GMT, spot gold, which hit a previous high only a day before, was trading at $1,067.85, up 0.4 percent from the U.S. close.

"The key is still the dollar's movement and if it continues to head lower then there's more room for gold to make new highs," said Adrian Koh, an analyst at Phillip Futures in Singapore.

The dollar index fell below 75.60 to its lowest since August 2008, while the euro climbed to a fresh 14-month high of $1.4891 as investors bet on higher-yielding currencies and commodities on growing optimism about the global economy.

Asian stocks were generally higher but traders were cautiously awaiting earnings reports from key U.S. companies later in the week for clues to the state of the economy.

"Many players are sidelined, but those who can still buy at these levels are preventing the market from easing," said Yuichi Ikemizu, Tokyo branch manager for Standard Bank. He said there were two-way flows on the physical side, with sellers being met by some purchasing interest for Indian religious festivals.

More gold scrap entered the physical market on Tuesday as bullion hovered near all-time highs, while last-minute purchases by Indian consumers ahead of the festivals kept premiums steady in Asia.

Some have expressed concern about the weakness of physical demand, which together with investment demand has been a major pillar driving gold prices higher over the past few years.

Paul Walker, chief executive at metals consultancy GFMS, cast doubt on the sustainability of current levels of gold prices.

"My concern is that this market is becoming increasingly unidimensional," Walker said at a seminar in Tokyo on Tuesday. "One pillar, jewellery demand, has become eroded."

Reflecting a cautious investor stance, the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,109.314 tonnes as of Oct. 13, unchanged from the previous business day.

But the world's largest silver-backed exchange-traded fund, iShares Silver Trust, said its bullion holdings rose 18.35 tonnes or 0.2 percent from the previous day to 8,612.57 tonnes on Tuesday.

Gold's rally pulled other precious metals higher on Tuesday. Silver rose above $18 an ounce for the first time since July 2008, to $18.01. Silver was at $17.92 on Wednesday. Platinum hit a 13-month high of $1,361.50 on Tuesday and stood at $1,359.0 on Wednesday.

(Editing by Lincoln Feast)

(For more news on Reuters Money visit www.reutersmoney.in

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