Gold holds near record highs; Soros cautious

(Reuters) - Gold retreated on Wednesday but largely held onto the last session's gains to all-time highs, as investor jitters and volatility in other markets prompted buying of the metal as an alternative investment.

Bullion found support just below $1,270 an ounce, near its record peak of $1,274.75 set on Tuesday, as the dollar surged 3 percent against the yen after Japan intervened to weaken its currency for the first time in six years.

"What's driving gold up is the fact that gold is a currency, it no longer is just a precious metal. The notion that gold is a reserve asset is a fundamental reason for it to rally," said Dennis Gartman, a Virginia-based hedge fund manager and publisher of the Gartman Letter.

Buying sentiment in the metal was weighed down by comments from billionaire financier George Soros, who reiterated to Reuters Insider that gold was "the ultimate bubble".

"It's certainly not safe and it's not going to last forever," Soros said.

Soros is one of the many high-profile hedge fund managers who in recent years turned bullish on gold. He was also a major stakeholder in the SPDR Gold Trust, the world's largest exchange-traded fund backed by gold.

Gartman said investors always heeded trading advice from Soros but gold's rally had yet to finish.

"Bull markets tend to end after they have gone parabolically higher, and gold has not done it yet," Gartman said.

Spot gold was at $1,267.50 an ounce by 3:24 p.m. EDT (1924 GMT), down $3 versus the close on Tuesday, when it surged more than 2 percent in its biggest one-day rally in four months.

U.S. gold futures for December delivery settled down $3 at $1,268.70.

Gold hovered near its all-time high on Wednesday, the second anniversary of the collapse of Lehman Brothers, a debacle that sparked the worst economic crisis since the Great Depression and underpinned investor demand for the metal.

Economic data showed U.S. industrial output slowed but still rose 0.2 percent last month -- normally a negative for gold, which has gained some 70 percent since the credit crunch of 2008 and Lehman's demise.

Also supportive for gold is the increasing likelihood of the Federal Reserve renewing its efforts to keep monetary policy exceptionally loose through the purchase of government bonds, a move known as quantitative easing.

On charts, gold was well supported by a long-term rising channel, and technical momentum could propel prices above record highs, analysts said.

UP, UP, UP

Gold in yen terms rose to a high of 108,849 yen an ounce, gaining 3 percent on the day and hitting its highest since early July, echoing a sharp fall in the yen after export-dominant Japan intervened to weaken its currency.

The metal largely ignored Anglogold Ashanti's (ANGJ.J) long-expected move to close its money-losing hedgebook -- the last remaining hedges owned by a major gold producer.

The South African miner's hedgebook at 2.72 million ounces represented about 7 percent of the 42 million ounces of gold bullion held by SPDR Gold Trust, commonly called GLD because of its ticker symbol.

GLD reported its largest one-day rise in gold holdings since late June. It said holdings rose to 1,298.698 tonnes by September 14 from 1,292.619 tonnes by September 13.

Gold is on course for a rise of about 16 percent in 2010, fuelled largely by investor nervousness after the fallout from the euro zone debt crisis and concerns about the global economy.

Spot silver rose to $20.54 an ounce, from $20.40 the day before.

Platinum hit $1,611.50 an ounce, the highest since June 21, and was last at $1,607.50 versus $1,586.30. Palladium traded at $554.50 from $547.75 on Tuesday.