Gold Hits Reocrd High

Gold rose slightly on Monday, hitting record highs for a third consecutive day as funds kept buying the metal on a weaker dollar and a report showing U.S. homebuilder sentiment stayed in the doldrums.

Traders said the market was focussed on the Federal Reserve's policy meeting which concludes on Tuesday.

Most economists do not expect any new economic stimulus programs from the Fed, But if the economic recovery falters, the U.S. central bank may opt later this year to make major repurchases of U.S. government debt, a plan known as quantitative easing. This could increase gold's appeal.

"There is a possibility that we could get at least some hints leaning towards quantitative easing, and that's what the gold market wants to hear," said Bill O'Neill, partner at New Jersey-based commodities firm LOGIC Advisors.

"Part of the recent rally has been based on the idea that we could have a second round of quantitative easing. So, if the Fed meeting turns out to be a complete nonevent, then you may see short term negative reaction on gold," he said.

The possibility of Fed stimulus kept many traders bullish about gold, which remained sharply below its inflation-adjusted all-time high above $2,200 an ounce.

Spot gold hit a record $1,283.70 an ounce, then pared gains. It stood at $1,277.60 an ounce at 3:16 p.m. (1916 GMT), up from $1,275.95 late in New York on Friday. U.S. gold futures for December delivery settled up $3.30 at $1,280.80 an ounce.

In recent years, many prominent hedge fund managers led by George Soros and John Paulson turned to bullion, fuelling its 17 percent rally year to date, sharply higher than the S&P 500 stock index, which is up less than 2 percent so far this year.

"Everyone's on the surfboard riding the wave. It's definitely the funds. We would never be seeing a run-up like this if it were not the big money behind it," said Miguel Perez-Santalla, vice president of sales at New York-based Heraeus Precious Metals Management.

But last week, Soros renewed a warning that gold is the "ultimate bubble" and "it's certainly not safe and won't last forever."

The dollar slipped, with some in the currency market cautious about the upcoming Fed meeting.

A weaker dollar often boosts gold. Although that correlation has been shaky this year, the inverse relation has strengthened in the last five days.

The home builders' sentiment report was the latest indication that confidence in the U.S. recovery remained fragile. U.S. consumer confidence data on Friday showed Americans this month at their most pessimistic in over a year.