Gold gained more than $6 an ounce on Friday as bargain hunting intensified after the U.S. dollar tumbled to record lows against the euro on expectations the Federal Reserve will slash interest rates next month.
Spot gold hit a bid high of $809.70 an ounce before dipping to $808.70/809.30 an ounce, still higher than $802.90/803.60 an ounce late in London. U.S. markets were closed on Thursday for Thanksgiving.
Speculative buying on COMEX futures during Asian trading hours also spilled into the cash market, helping gold breach initial resistance of $805. Gold was regaining strength after a recent correction and within sight of a 28-year high of $845.40 hit on November 7.
The funds will be interested in joining the momentum on the buying side, said William Kwan, a dealer at Phillip Futures Pte Ltd in Singapore.
There's active buying spurred by the euro hitting new highs. Maybe we can see another movement upward, said Kwan, who pegged the next resistance at $815 an ounce.
The euro hit a record high of $1.4968 on electronic trading platform EBS, the highest since its launch in 1999, on the belief the Fed will cut interest rates again in December.
The Fed's projection that economic growth will slow in 2008 reinforced expectations for further U.S. rate cuts, even though the central bank adopted a reasonably hawkish tone and said that October's cut was a close call.
A cut in interest rates will lift gold's appeal as an alternative investment, and surging crude oil also offers support for the metal.
Oil rose above $97 a barrel in thin trade on a falling dollar and signs that some OPEC members are stepping up production ahead of their policy meeting in two weeks.
I believe there's a chance for gold to reach $850 in the first quarter of next year, said Leo Hadi Loe, a consultant with Jewellery Indonesia -- a Jakarta-based firm promoting bullion in Southeast Asia's largest gold consumer.
Bullion may consolidate towards the end of the year but dollar weakness could spur buying again next year. Gold prices will go up early next year and may reach a peak in March or April. Then, gold will reach $850, said Loe.
Gold hit a record high of $850 in 1980 due to inflation linked to high oil prices, Soviet intervention in Afghanistan and the effects of the Iranian revolution. After adjusting for inflation, that level was equal to $2,079 at 2006 prices.
The most-active December gold contract on the COMEX division of the New York Mercantile Exchange rose $9.9 or 1.2 percent to $808.5 an ounce in electronic trade.
There are bargain hunters at the lower end. You have to decrease interest rates to rescue the housing sector, said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
Gold may face resistance at $816 an ounce but a break above that level could take the metal to $820 an ounce, said Leung.
The Fed's downgrade of the U.S. growth outlook highlighted vulnerability of the world's biggest economy as defaults in subprime mortgages hit banks. Investors also fret about further possible write-downs as well as rising inflation from surging oil, commodity and food prices.
Gold has been a haven in times of crisis for centuries and is gaining in popularity as an alternative investment to currencies and bonds. It is seen as a hedge against inflation and rose in value during the Great Depression of the 1930s.
In other precious metals, silver rose to $14.65/14.70 an ounce from $14.51/14.56 late in London.
Platinum rose to $1,469/1,474 an ounce from $1,466/1,471 an ounce. Palladium rose to $351/355 an ounce from $347/352 an ounce.
All Japanese financial markets are closed on Friday for a public holiday, Labor Thanksgiving Day.
The benchmark October 2008 gold futures on the Tokyo Commodity Exchange rose 10 yen per gram, or 0.4 percent, to finish at 2,846 yen on Thursday, after wavering between 2,814 yen and 2,852 yen.
(Editing by Ben Tan)