Speculators driving gold, volatility ahead - dealers

By Lewa Pardomuan

HONG KONG (Reuters) - Speculators have driven the price of gold to a record above $1,000 an ounce at the expense of demand from the jewellery sector, making it prone to a correction, dealers at a bullion conference said on Thursday.

But a recovery in the global economy and the strengthening of Asian currencies could also help jewellers, which account for half of global demand for bullion, cope with the rising prices.

"The price is driven by the hedge funds. If they still can make money from gold, the price of gold is going up," said Pawan Nawawattanasub, chief executive officer of YLG Bullion International, a leading jewellery exporter in Thailand.

"Everybody knows there's no demand from the jewellery sector. It's too high now. No-one wants to buy," Pawan told Reuters on the sidelines of a gold outlook conference in Hong Kong.

Gold struck record highs at $1,070.40 an ounce last week after persistent weakness of the U.S dollar ignited fund buying. Gold was slightly lower at $1,056 on Thursday -- still within sight of the peak.

Speculative net long positions on New York's COMEX market hit another all-time high 253,955 lots in the week to Oct. 13, suggesting growing risks for these long positions to be cleared and putting downward pressure on prices.

At the same time, gold was supported by inflation fears and a weaker U.S. dollar, which in theory makes dollar-priced gold cheaper for holders of other currencies. Gold is seen as a hedge against both inflation and a depreciating dollar.

"I expect more volatility in the price. As a price goes up, I expect that there will be corrections periodically. (Gold) is far from the top," said Jeffrey Nichols, managing director of American Precious Metals Advisors.