Gold rose more than one percent on Wednesday to trade just below its recent 28-year highs, as a weaker dollar against the euro increased the metal's appeal as an alternative investment. Spot gold rose as high as $745.80 an ounce and came closer to last week's high of $747.65 - the highest level since January 1980. It was quoted at $744.40/745.10 by 1437 GMT, compared with $736.60/737.40 late in New York on Tuesday.
"People are bullish on gold because they have no faith in the dollar. You have to detach yourself in some ways from day to day and say that what we are seeing is a market that is in a bull cycle," said Peter Hillyard, head of metals sales at ANZ Investment Bank.
"The market still believes that gold has the capacity to go much higher and whether it's true or not, there is a belief amongst the investors that gold is still a viable asset class."
The dollar fell as concern crept back into the market that the Federal Reserve may cut interest rates again this year to prevent a weak housing sector from damaging the broader economy. Though minutes from the Fed's September meeting, at which it cut rates by half a percentage point, revealed little inclination to cut again this month, investors feared signs of slower growth would force the central bank's hand by year-end.
A cut in interest rates is often seen as a negative factor for the dollar as investors turn to other alternative assets, such as gold, to park their money. But some bullion analysts were not so bullish on gold in the near term.
"We remain sceptical about the prospects for material near-term upside in gold due to the size of long positions held on US futures markets," said John Reade, head of metals strategy at UBS Investment Bank.
"Yet so far there is no sign of capitulation from gold longs, so we are merely marking time at the top of the range waiting for conviction," he wrote in a daily research report. In other bullion markets, US futures rose, with the most active December contract up $6.6 an ounce to $749.70.
The key August 2008 gold contract on the Tokyo Commodity Exchange closed up 43 yen, or 1.6 percent, to 2,822 yen per gram, the day's peak and the highest for any benchmark since April 1985. "Short term, the market is at risk of further corrections as pockets of profit taking emerge. However, with the market now entering the traditionally strongest period for physical demand, we expect those dips to be limited," said James Moore, analyst at TheBullionDesk.com.
In news, the Bank of International Settlements said that the central banks, which signed the Central Bank Gold Agreement, have sold 475.75 tonnes of gold in the third year of the agreement that ended on September 26.
South Africa's biggest mining union, the National Union of Mineworkers, was mulling a one-day strike this month to protest against deaths and accidents at mines, a senior union official said on Tuesday. Other precious metals also gained, with platinum jumping to $1,388/1,392 from $1,363.50/1,370.50 an ounce. Palladium rose to $374/378 an ounce, the highest in more than three months, versus $362/366 in New York, while silver climbed to $13.64/13.69 an ounce from $13.46/13.51.