Gold hits record above $910

By Atul Prakash
LONDON (Reuters) - Gold surged to a historic high above $910 an ounce on Monday as investors rushed to buy the metal on further weakness in the dollar and expectations of a sharp cut in U.S. interest rates. But the metal pared gains in afternoon European trade as some investors decided to take profits from a rally that saw prices jumping 50 percent in the past year, including a 15 percent rise in the last 30 days.
Gold's surge on the day also prompted buyers to snap up other precious metals, with platinum hitting a record high before giving up some gains. Silver was quoted below a 27-year peak, while palladium traded off its highest in two months.
"It's human nature to buy into a market that is already showing strength. Most fund managers have a herd mentality and they are just attracted to gains. Gold could go higher still, but we don't think this is a right time for buying," said Robin Bhar, metals analyst at UBS Investment Bank.
"From a technical perspective, we would obviously need to see a close above $900 that would be construed as a bullish sign. But fundamentally, we are very cautious and would not advocate going long here because positioning is still extreme. There is a risk of $50-$100 dollar correction at any time."
Spot gold jumped as high as $914 an ounce before falling to $902.10/902.80 by New York's last quote of 2:15 p.m. EST, against $895.70/896.50 in New York late on Friday.
The most-active U.S. gold contract for February delivery at the COMEX division of the New York Mercantile Exchange settled up $5.70 to $903.40 an ounce.
Japanese gold futures were closed for a holiday.
"If you look at the overall situation, there is a lot of fear about more bad news related to the banking sector. This is one of the main drivers at the moment," said Wolfgang Wrzesniok-Rossbach, head of sales at Germany's Heraeus.
"There is some profit-taking from the metal's highs, but no big wave of selling is seen here. Gold is trading in a normal range and is likely to hover in a wide band of $880-$920 in the near term," he said.
The dollar dropped to the lowest level in seven weeks against the euro and yen on Monday as fears that weak U.S. corporate earnings will push the economy closer to a recession, requiring the Federal Reserve to cut interest rates.
Interest rate futures are reflecting a 50/50 chance that the Fed could reduce its interest rate by three-quarters of a point between now and the Jan 29-30 meeting.
A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. Gold is also viewed as an alternative to holding the dollar, and thus the value of gold rises when the U.S. dollar falls.
SAFE HAVEN PLAY
"Option sellers are covering their positions. Also, hedgers are trying to undo forward sales after the $900 expected resistance was breached. In overnight trade, funds overseas also reacted to dollar weakness and rumors of rate cuts," said George Gero, vice president of RBC Capital Markets Global Futures in New York.
Gero also noted a big open interest of gold futures of more than 500,000 lots. Total open interest of COMEX gold futures eased 742 lots to a near-record 585,734 lots as of Friday, Reuters data showed.
"Risk averse investors jumped on the bandwagon as the $900 resistance was surpassed," Gero said.
Gold's appeal as a safe-haven investment has increased due to worries of further write-downs among major financial institutions and credit market meltdown in the United States, the world's biggest economy.
On charts, gold's 14-day relative strength indicator (RSI) rose to 89 from just 47 a month ago. The market views an RSI of 30 or less as oversold and 70 or more as overbought.
In Singapore, physical dealers noted selling from holders who cashed in on gold's gains as well as limited purchases from jewelers at lower levels.
Spot platinum hit a record high of $1,590.50 an ounce before falling to $1,572/1,577, against $1,562/1,566 late in New York on Friday. Silver rallied to $16.58 an ounce before easing to $16.35/16.40, up from its previous finish of $16.19/16.24. Palladium rose to $380 before falling to $379/384, versus its Friday finish of $375/379.