LONDON (Reuters) - Gold prices hit record highs at $1,180.00 an ounce in Europe on Wednesday, boosted by a report that India may consider buying more bullion from the International Monetary Fund, and the weaker dollar.
Spot gold was bid at $1,178.30 an ounce at 1022 GMT, against $1,168.90 late in New York on Tuesday.
U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange also hit a record $1,180.40 an ounce and were later up $12.80 to $1,178.60.
India's Financial Chronicle newspaper said on Wednesday that India is open to buying more gold from the IMF, which is thought to have around another 200 tons to sell.
"This, and the weaker U.S. dollar, are enough in these markets to push gold further up," said Commerzbank trader Michael Kempinski. "It should be time for a consolidation, but it doesn't come... (we are) just making new highs."
"We see $1,200 earlier than expected," he added.
The market is sensitive to speculation of further official sector buying after news in early November that India's central bank had bought 200 tons of gold from the IMF sparked a rally.
Russia, Sri Lanka and Mauritius have since also announced gold acquisitions, and traders speculate that more central banks, particularly in Asia, could be open to gold acquisitions to diversify their foreign exchange reserves.
"We have had relatively supportive news from the central banks, particularly in Asia, confirming that there is demand for gold as a means of diversifying their large foreign exchange reserves," RBS Global Banking & Markets analyst Daniel Major said.
"There is plenty more potential for central banks to buy either IMF gold or other gold in the market to try and boost their reserves."
Further gains expected
Expectations for further reserve diversification, as well as prospects for further dollar weakness and fears over inflation in 2010 have all fueled investment demand for the precious metal, and could lead to further sharp prices gains.
"Central bank and other investor demand could see gold move to $1,500/oz in the next 3-6 months," said Fairfax in a note.
Weakness in the dollar remains a major support of the gold market, with the U.S. currency dropping 0.49% against a basket of six others on Wednesday.
Traders cited several factors contributing to the dollar's fall, including talk of a large fund selling, rebalancing of the MSCI Japan share index favoring the yen, and the prospect of low U.S. rates after Federal Reserve meeting minutes.
Dollar weakness helped lift other commodities, with oil prices ticking up 0.5% and industrial metals prices climbing.
Elsewhere, holdings of the world's largest gold exchange-traded fund, the SPDR Gold Trust, rose nearly 1 ton on Tuesday to their highest since late June.