Gold hits $980 on dollar slide, fund inflows

By Frank Tang

NEW YORK (Reuters) - Gold futures rose above $980 an ounce on Friday to end near a three-month high as a growing appetite for risk flushed investors out of the dollar and into bullion and other commodities.

Gold prices climbed more than $20 this week amid signs the recession could be easing, and oil rallied to its highest level of 2009 while the dollar plunged to five-month lows.

Investors view gold as insurance against the falling value of their dollar-denominated portfolios. The inverse relationship between gold and the dollar broke down early this year as both assets benefited from a flight to safety.

"I think the combination of a sector-wide commodities rally plus a weaker dollar has made gold moving. We have substantial inflows into the commodity sector, most prominently in oil," said James Steel, chief commodities analyst at HSBC.

U.S. August gold futures settled up $17.10, or 1.8 percent, at $980.30 an ounce on the COMEX division of the New York Mercantile Exchange. August hit a high of $982, the highest level since February 25.

Spot gold traded at $976.80 an ounce at 2:13 p.m. EDT, versus Thursday's last quote of $958.80 in New York. Gold peaked at $980 an ounce.

Buying sentiment among gold investors got a big boost on news that Canada's Claymore Investments Inc said it has bought 345,000 ounces (10.7 tonnes) of gold bullion in conjunction with the launch of its gold bullion fund.

"There was new buying came in to buy gold as an asset class out of Canada," said Frank Holmes, chief executive of U.S. Global Investors Inc, which manages over $2 billion in mutual fund assets.