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Dec. 1 (Bloomberg) — Gold prices topped $1,200 an ounce for the first time as the slumping dollar spurred investor demand for an inflation hedge. Silver and palladium futures jumped to 16-month highs.

Precious metals climbed as the dollar fell against a basket of currencies, partly because Dubai’s credit risk declined. The Reuters/Jefferies CRB Index of 19 commodities rose to a five- week high. Morgan Stanley and BlackRock Advisors LLC increased their gold assets in the third quarter, U.S. filings show.

“There is investment demand for gold from everywhere,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “The dollar has pushed gold to new highs. Gold is in an uptrend, and there is no sign that the trend will stop.”

Gold futures for February delivery rose $17.90, or 1.5 percent, to $1,200.20 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the metal reached a record $1,204.

Silver futures for March delivery jumped 68.5 cents, or 3.7 percent, to $19.21 an ounce in New York. Earlier, the metal reached $19.30, the highest price for a most-active contract since July 15, 2008.

Palladium soared $17.75, or 4.8 percent, to $383.95 an ounce in New York. Earlier, the price reached $388.60, the highest level since July 29, 2008.

Gold has advanced 36 percent this year, more than the MSCI World Index of shares and U.S. Treasuries. The metal is headed for the biggest annual gain since 1979.

Gold ETF

Yesterday, holdings in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, increased to the highest since June 24.

Morgan Stanley’s SPDR holdings increased 3.5 million shares to 6.5 million as of Sept. 30. BlackRock’s holdings soared 5.9 million shares to 6.4 million. Soros Fund Management LLC also bought shares in the period.

Gold traded in euros, pounds and Swiss francs climbed to all-time highs on Nov. 27.

“Gold is the international currency,” Lesh said.

The Federal Reserve has kept benchmark interest rates close to zero percent since December in a bid to revive lending after the worst financial crisis since World War II. The U.S. government has boosted spending to combat the recession, pushing the nation’s marketable debt to more than $6.9 trillion.

Inflation Concern

“With interest rates so low and a climbing deficit, there’s real fear that inflation will be a salient problem,” said Michael Pento, the chief economist at Delta Global Advisors. In January, when gold slipped below $850, Pento predicted gold would reach $1,200 by year-end. “It’s hard to make a bearish case for gold now,” he said on Nov. 25.

The euro rose to $1.511 against the greenback at 2 p.m. New York time. Should the euro reach $1.60, gold will soar to $1,400, said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.

Demand for bullion also has increased among governments. Central banks in India and Mauritius bought the metal from the International Monetary Fund. China and Russia also added to their holdings.

Concern over Iran’s nuclear program may be another reason for gold’s advance, Michael Guido, Macquarie Capital USA Inc.’s hedge-fund sales director in New York, said yesterday in a note.

The U.S., the U.K. and other European allies condemned Iran’s plan to expand its nuclear program in defiance of United Nations sanctions. Some investors buy gold as a haven in times of escalating political tensions.

Hedge-fund managers and other large speculators increased their net-long position, or bets on higher gold futures, to the most since at least 1993, according to a report yesterday from the U.S. Commodity Futures Trading Commission.

The net-long position was 262,331 contracts as of Nov. 24, up 11 percent from a week earlier.

Platinum futures for January delivery climbed $26.40, or 1.8 percent to $1,486.60 an ounce in New York. The price reached $1,494.80, the highest level since Sept. 2, 2008.

Bloomberg | Claudia Carpenter and Pham-Duy Nguyen | Tuesday, December 1, 2009