Gold reaches all-time high Wednesday, as dollar weakens

Gold hit a lifetime high on Wednesday, its 10th record in 12 sessions, as the dollar dropped against a basket of currencies on expectations the
Federal Reserve would take new measures to shore up the economy.

Silver surged to a 30-year high as ETF holdings jumped to another record, palladium rose to a five-month high to track higher base metals prices [MET/L], while a firm yuan raised hopes of more buying from gold consumers in China.

The Fed is likely preparing a fresh round of quantitative easing measures to announce at the end of its Nov. 2-3 meeting, a report by influential hedge fund adviser Medley Global Advisors said on Tuesday, a source told Reuters.

Gold rose as high as $1,312.05 an ounce and was at $1,311.55 by 0453 GMT, up $4.15 from New York's notional close. U.S. gold futures also surged to a record.

"We are on a bullish mood. The economy in the U.S. is weak and the Fed will be launching some more rescue packages," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. "The appreciation of the yuan causes some people in mainland China to buy a bit of gold."

London silver fix price reached $25 in September 1980, according to The Silver Institute, a U.S.-based industrial group.

Silver's main sources of demand are for use in industrial applications such as semi-conductors and jewelry. The world's largest silver-backed exchange-traded fund, the iShares Silver Trust (SLV), said its holdings rose to a record of 9,756.04 tons by Sept 28 from 9,613.02 tons on Sept 24.

"Silver is cheaper is compared with gold. Even at $25, it is still cheap," Lee Cheong Gold's Leung said. "I would say silver still attracts some buying. The industrial side has to buy."

The dollar extended its losses against a basket of currencies to hit an eight-month low on Wednesday, hurt by recent market speculation the Fed may embark on a second round of quantitative easing later this year.

The yuan CNY=CFXS rose to its highest level since the Chinese currency's July 2005 revaluation amid lingering pressure from Washington on Beijing to let the yuan appreciate.

U.S. gold futures for December delivery GCZ0 hit a lifetime high at $1,313.5 an ounce, exceeding Tuesday's record of $1,311.80.

"Add federal budget deficits exceeding $1 trillion a year for several years to come, and an economy that can't produce enough to sustain Barack Obama's appetite to tax and spend, and investors are simply smart to short the dollar by loading up on gold," said University of Maryland business school professor
Peter Morici. "That's why gold is $1,300 an ounce!" he said in a note.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P), said its holdings rose to 1,305.688 tons by Sept 28 from 1,300.521 tons on Sept 24. The holdings hit a record at 1,320.436 tons on June 29.

The physical market lacked activity, but premiums were steady at 50 to 80 cents to spot London prices in Singapore and at 80 cents in Hong Kong.

IN PICTURES: Gold's journey