Gold hits record high

Weaker U.S. dollar sparks interest in precious metals, prices rise to $1,036.60 (U.S.) an ounceGold (GC-FT1,044.6026.802.63%) rallied to an all-time high on Tuesday as a report that Gulf Arab states were considering pricing oil in a currency other than the U.S. dollar knocked the U.S. unit, boosting interest in the metal as an alternative asset.

A small seasonal increase in demand for physical gold is also supporting prices, traders said.

Gold prices hit a record high of 1,036.60 dollars an ounce.

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.”

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 weak.

Dollar weakness, if sustained, could push gold prices to new all-time highs above $1,030.80, the peak they hit in March last year, analysts said.

“The ability of gold to climb back over $1,000 is, in our opinion, impressive,” HSBC analyst Jim Steel said in a note.

“If the dollar remains subject to gradual erosion and commodity prices remain firm.... then gold is likely to remain well-bid and may challenge all-time highs.”

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 say they are also seeing rising demand in major gold consumer India ahead of the Diwali festival on Oct. 17.