Gold hits record on talk of Indian buying

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LONDON (Reuters) -- Gold prices hit record highs above $1,180 an ounce in Europe on Wednesday, boosted by the euro's move through $1.50 against the dollar and by a report that India may consider buying more bullion from the IMF.

U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange rose $21.20 and settled at a record $1,187.00 an ounce.

The dollar fell to a 15-month low against the euro due to views that U.S. rates would stay low and as Russia said it would diversify currency reserves, though it pared losses after a mixed batch of U.S. data.

Meanwhile India's Financial Chronicle newspaper said on Wednesday that India is open to buying more gold from the International Monetary Fund, which has around another 200 tonnes to sell. The IMF said it had no comment to make on the report.

Standard Chartered analyst Daniel Smith said further Indian buying could be "potentially very bullish" for gold.

"Most commodities are rallying on the back of the weaker dollar, and that move is potentially quite significant," he said. "Gold has been outperforming on the back of this general rally in commodities, and that tells us that there is more to this than just the dollar story."

"My feeling is that we are going to keep going higher for the time being," he added.

The market is sensitive to speculation of further official sector buying after news in early November, that India's central bank had bought 200 tonnes of gold from the IMF, sparked a rally.

Russia, Sri Lanka and Mauritius have since also announced gold acquisitions, and traders speculate that more central banks, particularly in Asia, could be open to gold acquisitions to diversify their foreign exchange reserves.

"We have had relatively supportive news from the central banks, particularly in Asia, confirming that there is demand for gold as a means of diversifying their large foreign exchange reserves," RBS Global Banking & Markets analyst Daniel Major said.

"There is plenty more potential for central banks to buy either IMF gold or other gold in the market to try and boost their reserves," he added.

Expectations for further reserve diversification, as well as prospects for further dollar weakness and fears over inflation in 2010 have all fueled investment demand for the precious metal, and could lead to further sharp prices gains.

"Central bank and other investor demand could see gold move to $1,500/oz in the next 3-6 months," Fairfax said in a note.

Dollar weakness helped lift other commodities, with oil prices ticking up half a percent in early trade and industrial metals prices climbing.

Elsewhere, holdings of the world's largest gold exchange-traded fund, the SPDR Gold Trust, rose nearly 1 tonne on Tuesday to their highest since late June.

Indian gold traders meanwhile continued to stock up for weddings in anticipation of a further price rise, but the flow of scrap sales eased.

Silver was bid at $18.63 an ounce versus $18.49. Holdings of the world's main silver ETF rose 136 tonnes to a record 9,252 tonnes on Tuesday, while ETF Securities' silver exchange-traded product also hit record levels.

Platinum was at $1,466 an ounce against $1,444.50, while palladium was at $369.70 against $366.35. Holdings of ETF Securities' palladium-backed ETP rose to a record 620,359 ounces on Tuesday, and are up 11% month-on-month.