By Kim Kyoungwha and Sungwoo Park Dec. 3 (Bloomberg) -- Gold advanced to a record for a third day as investors sought protection against the prospect of currency debasement and inflation, spurring demand for the metal as an alternative asset. Bullion may rise to $1,350 an ounce next year and reach as high as $1,500 within two years because of the declining dollar and renewed investment demand, Newmont Mining Corp. Chief Executive Officer Richard O’Brien said yesterday. “Sentiment is still upbeat and investor demand continues to be strong,” said Stefan Graber, an analyst with Credit Suisse Group in Singapore. “You can’t really fight momentum. The rally will continue into year-end because of enthusiasm in the market.” Spot gold strengthened as much as 0.8 percent to a record $1,225.04 an ounce before trading at $1,222.99 at 10:37 a.m. in Singapore. Gold for February delivery in New York also climbed to an all-time high of $1,226, up 1.1 percent. Bullion has risen 39 percent this year as the dollar has dropped 8.4 percent against a basket of six major currencies. The Federal Reserve has kept benchmark U.S. interest rates close to zero percent since December 2008 in a bid to revive lending after the worst financial crisis since World War II. The European Central Bank’s main lending rate is 1 percent and the Bank of England’s rate is at 0.5 percent. Fed officials acknowledged last month that the record-low borrowing costs might fuel “excessive” speculation in financial markets and possibly dislodge expectations for low inflation. Price Forecast Goldman Sachs Group Inc. this week raised its forecast for average gold prices in 2010 by 14 percent to $1,099 an ounce. Futures have averaged about $963 this year as prices head for the ninth straight annual gain. “Gold is rising to records because investors want to hold it to hedge against inflation,” Hwang Il Doo, head of the trading team with KEB Futures Co. in Seoul. “Other metals are getting a boost from rising gold.” Governments in emerging markets have been adding gold to their reserves while the biggest holders haven’t been selling. The European Central Bank reported yesterday that no central bank sold gold last week. Since the end of September, India, Mauritius and Sri Lanka bought more than half of the 403.3 metric tons of gold that the International Monetary Fund plans to sell to bolster its balance sheet and boost lending to low-income nations. Some analysts have speculated that China might buy part or all of the rest. ‘Bubble’ Assets Hu Xiaolian, a deputy governor at the People’s Bank of China, said the price of gold is at a very high level, Apple Daily reported today. The central bank will be wary of investments in “bubble” assets, the Hong Kong newspaper cited Hu as saying at an event in Taipei. Gold’s gains may be limited after futures rallied 14 percent in November, the biggest monthly increase in a year. The 14-day relative strength index for gold has been above 70 since Nov. 13, a signal that prices may decline in the short term. Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, increased for a third day to 1,131.21 tons as of Dec. 2, according to the company’s Web site. The fund’s holdings reached a record 1,134 tons on June 1. Silver for immediate delivery rose as much as 1.2 percent to $19.46 an ounce, the highest level since July, 2008. Palladium gained as much as 0.6 percent to $392 an ounce before trading at $390.75 and platinum was unchanged at $1,501.75 at 10:04 a.m. Singapore time. To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Sungwoo Park in Seoul at spark47@bloomberg.net

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