TOKYO: Gold prices rose on Thursday and hovered near 18-month highs hit the day before when the dollar slid, with optimism about the global economy prompting investors to buy riskier and alternative assets.
Traders said the correlation between the dollar and gold has deepened as gains in bullion accelerated, with currency dealers also taking their cue from the gold market to bet on the greenback's weakness.
Traders were closely watching the dollar's move against the euro to gauge whether gold's rally will be sustainable and how far prices can rise.
"I expect gold prices to extend gains as long as the broad dollar weakness continues, but with a particular focus on euro/dollar moves," said Masato Miyanaga, a senior adviser at H.S. Futures in Tokyo.
He expects the euro/dollar near-term target to be $1.485, after which gold may see a correction if the euro eases from that level.
Spot gold inched up 0.3 percent to $1,019.45 an ounce as of 0526 GMT, compared with New York's notional close of $1,016.70. It rose as high as $1,020.50 an ounce on Wednesday, its highest since March 2008.
U.S. gold futures for December delivery edged up 0.1 percent to $1,021.7 an ounce from $1,020.20 on the COMEX division of the New York Mercantile Exchange.
The contract reached a high of $1,023.30 on Wednesday, unseen since July 2008. U.S. gold futures are eyeing the prior record high on gold's continuation chart of $1,033.90 an ounce.
Buying of gold accelerated when the dollar extended losses against the euro to its 2009 low, reinforcing the metal's appeal as an alternative investment.
The low-yielding dollar remained pressured on Thursday after dropping to a one-year low against the euro of $1.4736 and a near one-year low against a basket of currencies on Wednesday as optimism about the global economy eroded the greenback's safe-haven appeal.
"The market is waiting for a fresh excuse to push prices higher, as people remain bullish on gold," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. "Gold will remain strong unless the dollar reverses and rises or unless central banks say they will tighten credit," he said.
The market rally revived investors' appetite.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings rose to 1,086.479 tonnes as of September 16, up 7.628 tonnes or 0.7 percent from the previous business day.
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