Gold hits record high at $1,036.40/oz

By Jan Harvey

LONDON (Reuters) - Gold hit a record high at $1,036.40 an ounce as the dollar dropped on a report, later denied, that Gulf Arab states were considering abandoning the U.S. currency for oil trade.

A positive technical picture for gold fuelled 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 correction.

Spot gold was bid at $1,032.05 an ounce at 1319 GMT against $1,016.65 late on Monday.

U.S. gold futures also hit an all-time high, with gold futures for December delivery on the COMEX division of the New York Mercantile Exchange hitting a peak of $1,038.00 an ounce. They were later up $16.10 at $1,033.90.

"Investors (and) funds keep buying as the technical side looks good," said senior Commerzbank trader Michael Kempinski. "Even without the weak U.S. dollar, gold is performing quite well."

Gold also hit six-month highs when priced in sterling and euros, breaking above 700 euros an ounce for the first time since early April.

The dollar slipped sharply in Asian trade after UK newspaper the Independent said Gulf Arab states were in secret discussions to end the use of dollars in oil trading.

The newspaper said the states were in talks with Russia, China, Japan and France to replace the unit with a basket of currencies. The dollar pared losses after the report was denied by Saudi and Russian authorities, but stayed soft.

Dollar weakness, if sustained, could push gold prices to new all-time highs above the peak they hit in March last year, analysts said.

Peter Fertig, a consultant at Quantitative Commodity Research, said the final quarter was typically strong for gold, due to rising jewellery demand -- a weaker than usual factor this year -- and as the dollar is seasonally soft.

"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, 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, said he saw gold prices at $950-1,100 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 near two-week high of $17.21 an ounce as investors bought it as a cheaper proxy for gold. Silver was later at $17.11 an ounce against $16.59.

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 was at $1,305 an ounce against $1,293 while palladium was at $299 against $298.50.

(Reporting by Jan Harvey; Editing by William Hardy)

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